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"BROADSHEETS"
ON NATIONAL
FINANCE
A
PUBLISHER'S NOTE
WITH a few exceptions all the chapters comprised
in this book represent a series of " Broadsheets "
contributed to the public press at the author's own expense
from January, 1920, to April, 1921.
They are now gathered together into more permanent
form in response to many requests and in a patriotic desire
to support those who work for the world's true weal and as
an offering of reasoned counsel to all labourers — whether
of hand or brain — who would know more of a subject which
is the key to their own and their Country's well-being.
" BROADSHEETS "
ON NATIONAL
FINANCE
By
SIR OSWALD STOLL
485126
LONDON : PUBLISHED BY WILLM J. ROBERTS
AT TEN CHARING CROSS ROAD 11 MCMXXI
CONTENTS
PAGE
Publisher's Note ........ 2
To THE LOftDS OF THE TbEASURY .11
[Pint printed in The Pall Mall Gazette, Jan. 80, 1920.]
Hyat«rioAl fln^TiAml outcry — Mr. Secretary Lansing's Report to th«
United States Senate— Eoonomio preponderance of Amenca in 1 920
aanued by Ti?«gUw«^ on the advice of its experts — Sir Oswald Stoll's
intuition and prophecy relating to this in 1916 !
To THE Lords of the Treasury . . . . .18
[First printed in The Times and The Pall Mall Gazette,
Feb. 8, 1920.]
The verbal counters of financial experts — Speech of Mr. Reginald
McKenna on January 29, 1920, dissected and criticized, as to
Currency, Price of Commodities, Demand and Spending Power of
the public — His figures as to amount of Currency held by the
Sablic in 1914 and in 1919 compared in relation to the amount of
told represented therein — The arbitrary limitation of Currency ;
does "Currency" mecui "Medium of Exchange" or "Legal
Tender " T — The present principles a tissue of fallacies.
To THE Secretary to the Treasury, U.S.A., Mr. Carter
Glass .......... 17
[First printed in The Pall Mall Gazette, Feb. 6, and The
Manchester Guardian and The Daily Telegraph, Feb. 7,
1920.]
Mr. Carter Glass' ono-timo " sound " views on bank-note issues
compared with his apparent change of opinion subsequent to his
appointment as Treasury Secretary — The issue of Federal Reserve
Notes as Legal Tender by America is a financial blunder which
will be converted into a boomerang — The Discount System in
Europe^ by Paul M. Warburg, quoted — America refusing Credit for
Bills on Europe adversely affects her own people — "Hie fallacy
underiying America's Federal Reserve Note System is one not
observed by Paul IL Warburg, but is observed and execrated by
Amarioans who cannot trade under it ! — ^The author offers a
' ' sans solution ' ' of the Financial impasse which Mr. Carter
Glass has created.
To Lord Inverforth ....... 21
[First published in The Pall Mall Gazette, Feb. 11, 1920.]
England's debt to foreign countries, principally the United States ;
how it was incurred and how partly liquidated — Lord Inverforth's
strange logic — Thi6 real remedy for prevailing high prices, according
to the author — What will result if the remedy Iw not applied — Our
Exporters of Coal and raw materials are selling the Coxmtry's
Birthri^t for a Mess of Pottage and bringing its manufacturing
industries to a stemdstill.
6 CONTENTS
PAGE
To THE MaSTEH of THE MiNT ...... 24
[First published in The Pall Mall Gazette, Feb. 16, and The
Daily Express, Feb. 17, 1920.]
Hie anomalous position of this Government Contractor, forced
by circumstances to reduce the quality of his products, although
not chfinging the descriptive tickets on the price ! — The resultant
' ' fall " in Legal Tender will cause the price of commodities to rise —
The shop-keeper and his customers nonplussed and angry — How the
United States was saved from the Greenbfick Crisis affords no hasia
for optimism by us in our present crisis — An unprecedented sta-
bility tmd prosperity could be assured to the British Empire by the
adoption of the author's suggestion with regard to Credit-right.
To THE Sewing Cotton Committee ..... 28
[First published in The Daily Express, Feb. 21, 1920.]
The profits made by Messrs. Coats, Sewing Cotton Manvifacturers,
utilized as a text upon which to btise a sermonette on the dimin-
ished purchasing-power of money in 1 91 9 in comparison with 1 91 3
— The reason for soaring prices is to be f oiind in the lowering of the
Gold Standard.
To Financial Critics 30
[First published in The Daily Express, March 6, 1920.]
llr. Robert Benson's views on the cause of Expansion of Currency.
The Cardinal Error of Socialism ..... 31
An open letter to Mr. Ernest Bevin.
[First published in The Daily Express, March 31, 1920.]
Is the destruction of the Capitalist System a sound poUcy ? — ^The
deadly pfutiUel of the destructiveness of the world war — Mr.
Bevin's standard of life for the wage-earner can be secured by the
extension, not the destruction, of the system he condemns — The
Capitalist System contains a pesirl of great price, viz., the instru-
ment of Nation-wide Individualism, accessible to the wage-earner
under conditions set forth in the author's scheme which he explains.
" The Economic Consequences of the Peace." . . 35
[First published in The Pall Mall Gazette, April 12, 1920.]
Why Germany cannot pay — The Economic Consequences of the
Peace, by John Maynard Keynes, quoted as special pleading by
the Economic notability of the day — The magnitude of England's
war debt and who will pay it — Man and machine power and the
inevitable desperate conflict between investors and the working
rl i m i — Bank Credits for productive purposes the solution of the
ESoonomio problem.
CONTENTS T
PA«B
BUDORTING FOR DI8A8TBR . . . .89
[First published in The Daily ExpresB, April 23, 1920.]
The estimaUHl sum total of wealth produced in the United Kingdom
in one year — How a huge percentage of this is proposed to be aquan-
dered by the Chancellor of the Exchequer — National Bankruptcy
the result — Some Buggeetions to obviate working loasea on Govern-
ment enterprises — Mr. Chamberlain condemning his own Budget —
Tlie true remedy lies in helping, not hindering, indvistry by the
adoption of the author's scheme of Credit-right — Is there a oon-
apiracy to kill it by SILENCE T
A Tax on Turnover : Suggested Modification ... 44
[First published in The Financier, May 21, 1920.]
Mr. Chamberlain's Tax on Turnover a strong condemnation of his
own Ezcess-Profite duty and Corporation tax — The international
masters of organized finance the masters of the world, with the pro-
ducers as their victims and slaves — a Tax on finished products :
how it would work — The Entertainments Tax, cited as an example
of such a tax, would entail only a small cost for collection — The
Editor of The Financier adds a few words of comment.
"What must we do to be Saved ? .... 49
[First published in The Daily Express, May 12, 1920.]
A critical condenmation of the Budget — Joseph's coat of many
colours a model of sartorial propriety compared with the patch-
work garment called Parliament — The patches are named and
are found to be a Chromatic outrage — So, too, are the public utter-
ances of individual Ministers — Mr. Bonar Law cited as an example
— Whilst, strangest of all, " Laboiu: " looks on and applauds that
and those which axe working to enslave it.
The Coming Crisis ....... 58
[First published in The Daily Telegraph, June 8, 1920.]
The most terrible economic upheaval the nation has ever known
— Futile ideas for its averting occupy the public mind — How
the CSiancellor could avert it, had he the wisdom and the courage
— National Finance versus Financier's Finance — A warning to
Capital and Labour — The times are ripe for the establishment of
the author's scheme for Credit-right.
The Chancellor's Red Light ! ..... 56
[First published in The Daily Telegraph, June 16, 1920.]
A critical examination of Mr. Chamberlain's statement that
" Capital must be conserved for public and for business needs "
— What is meant by "Capital" — The low Bcuik Reserve and
higher Currency Note issue are the results of Treasury gambles
— The Chancellor's acknowledgment in set terms that the Qovem-
ment and the Country is absolutely controlled by the financial com-
munity — Is there a purpose behind this public acknowledgment 7
If so, will the Nation heed the red lamp which the Chancellor-
Signalman waves T
CONTENTS
PAGE
Tragic Finance: Is the Bank Rate 7 per cent, or 24 per cent. ? 61
[First published in The Daily Telegraph, June 22, 1920.]
A deceptive Bank Rate — Pointed questions aa to the reason for
tliis heavy Rate «uid the secrecy regarding it — How it hits the
manufacturer and the trader — Disquieting figures relative to our
trade with countries where monet€iry exchange is against us
— A suggested " Committee of Commercial and Industrial Safety "
with a list of those who should be excluded from it.
Stop the War between Finance and Industry : it Menaces
THE State 1 . . . . . . . . .64
[First published in The Daily Telegraph, July 6, 1920.]
Finance as the vital power in the Nation's Economic life — How
the Financier wages a silent war of mancsuvre and conspiracy
against Conunerce «uid Industry — The strangle-hold exerted when
the Nation is weak — ^The workers' " ca' c€mny " a natural conse-
quence of restricted credit — The methods of the Financiers
examined — How to avert the Wtir of Industrial Independence
which is inevitable in certain circmnstances.
** The German Great Banks and their Concentration " 68
[First published in The Daily Telegraph, July 16, 1920.]
Stinnee the nominee of International Finance — His sardonic
optimism — Dr. J. Riesser's work on The German Great Banks
and their ConcentraUon proves the stupendous money power
behind Stinnee — How the power has been built up luider the close
cooperation of Stinnee and Atigust Thyssen — A remarkable
revelation.
The Russia that is Rising from a Paper Money D^bIcle 74
[First published in The Daily Telegraph, July 27, 1920.]
The depreciation of Legal Tender Currency in Russia — How it
paved the way for Dictator Lenin — The dictator's policy working to
enslave the people for purely destructive pvuposes — Russia, under
Lenin, a menace to the peace of the world unless England, by her
example, gives Russia a lead — " Be just and fear not " the beet
poUcy for all in the interests of self-preservation !
Forsaken by America !....... 78
[First published in The Daily Telegraph, Aug. 4, 1920.]
Have we lost the Great War ? — America really helped \is when she
instituted the financial blockade of Janxiary, 1918, but she
prevented a victorious march on Berlin by substituting the Armis-
tice ! — Our own Government makes war upon its own people — The
policy of Abraham Lincoln is what we require — Will Mr. Lloyd
George rise to the occasion and wear the mantle of Lincoln ?
CONTENTS 9
PAOS
Thb Cbisib ! " A Little Child Shall Lead Them." ... 84
[First published in The Daily Telegraph, Aug. 17, IMO.]
The Children's Newspaper makitm m momentous sonooiioement
— The maritime rights of the riwr Danube and its meaning —
International Finance as the newer to flout, embarrass and oheek-
mate the British Premier I — ooviet Russia as the sexton of certain
seaboard countries of Europe^Upon the British Premise's adop-
tion of a sound Monetary Standard and Credit-ri^t depends toe
future well-being of this country.
Our Legal Tender Lapse ...... 88
[First published in The Daily Telegraph, Aug. 26, 1920.]
The wiadom of John Locke contrasted with the superficial devices
of John Law — Yet our Treasury prefers the latter ! — The insta-
bility of BO-called Secuntiee due to their variabiUty : Gold the
true HtAndard — Mr. Stanley Baldwin's agreement re The National
Debt and it« repayment — Alexander Hamilton and the ' ' shin-
plasters " — Bills of Exchange are not commodities — Why the
rate of Exchange is against us in America — ^The U.S.A. Federal
Reserve Board and not our Trectfury controls tiie cost of living in
Strikes, Lock-outs and Financial Concentration . . 96
[First published in The Daily Telegraph, Sept. 15, 1920.]
The three great prizes, so-called, of up-to-date Political Ek:onomy —
The elusive value of Financial Concentration — Why Lock-outs have
Uttle National Value — How and why Strikee have no value—
— The antitheses of all three set out and explained.
Notes on Alternative Taxation and Conditions to those
Involved in the Last Budget ..... 101
[First published in The Daily Telegraph, Oct. 18, 1920.]
How to provide against imemployment, coal-strikes and other
disturbances amongst the workers — Budget Estimates bound
to be excluded — ^The restoration of the Oold Monetary Standard
and the Establishment of Credit Right are the only methods by
which to counteract iinreet and social upheavals — Unsound features
of the Budget examined — Some stiggestions as to Alternative
Taxation.
*' Work While ye have the Light ! " . . . .110
[First published in The Daily Telegraph, Nov. 4, 1920.]
The clouds of Economic and Social upheaval are preventable^
Horrors of a Monetetry D^b&cle — How they were and are produced
in America, France and Russia — The unavailing plocM of French
Statesmen during the Revolution — H. G. Wells on Russia in the
throes of des tiu oao a A plea in support of our Cheque System.
10 CONTENTS
PAOS
He. McKenna on " Money and Foreign Exchange." . 118
[First published in The Daily Telegraph, Nov. 25, 1920.]
The subject of International Exchange is iinderstood by few leading
bankers and merchants — Mr. McKenna does not understand the
nature of money — His confusion of the two terms " Currency " and
"Money" — Conant's Principles of Money and Banking quoted
— Goschen and Foreign Exchanges also quoted — Mr. McKenna's
arguments are weighed and found wanting.
An Open Letter to the Viceroy-Designate of India. . 128
[First published in The Daily Telegraph, Jan. 14, 1921.J
The great crisis in British relations with India is due to the depre-
ciated value of the Rupee — Palgrave's Dictionary of Political
Economy quoted on the subject of hoarding in India — The
reason for such hoarding — Dealers in Silver rub their hands delight-
edly whilst India s\i£Eers and our relations with her are jeopardized
— ^The ' ' Indian Coinage Act" of 1 906 is to blame — An eloquent plea
to Lord Beading to save the situation : suggestions to that end.
yfrvL Germany Win Yet? 184
[First published in The Daily Telegraph, Feb. 1, 1921.]
England on the edge of a precipice — Germany's debt and how it
should be paid — Does the proposed 1 2 J per cent. Tax on German
exports really meet the case — The possibility of Germany repudia-
ting her debt to the aUies — Figures for thoughtful people.
German Indemnity: Notes to Bearer ..... 189
[First published in The Daily Telegraph, Feb. 8, 1921.]
Germany's Notes to Bearer — The attempt to make German
paper good Currency in «J1 the Allied countries — This would make
Germany the conqueror, not the beaten foe — Commendatore Gian-
nini playing with fire — The author's suggestiona to the Allies on
collecting the indemnity.
Legislative Corks on Troubled Industrial Waters . 142
[First published in The Daily Telegraph, April 2, 1921, and
The Manchester Guardian, April 4, 1921.]
The Trade Resolutions on the Protection of Key Industries and the
Prevention of Dxmiping and Balancing of Exchange — The " Pro-
tection " we require is protection from such resolutions — The
author shows how their net effect will be to produce more unem-
ployment and demands for further doles whilst the back of Industrial
concerns will be broken not only in this but also in other financially
enslaved countries — A challenge to the Chancellor of the Exchequer
to explain how our present Legal Tender is functioning to the
detriment of National Interests.
The National Agony !....... 146
[First published in The Daily Telegraph, April 6, 1921. J
The Politicians who do not know and will not learn the ABC
of National Economics — How the contraction of Credit stopM
the production and circulation of commodities and services — A
grave warning to the Politiciaois who know, but will not apply, the
remedy for the disease which is causing the National Agony.
TO THE LORDS OF THE
TREASURY
SAVE the country from the Experts and the Experts
from themselves in the present hysterical financial
outcry !
The Experts are responsible for the crisis !
The Star reports that Mr. Secretary Lansing has said
in a report to the United States Senate : —
" The United States, THROUGH NO EFFORT
OF ITS OWN, has come into a position of eco-
nomic preponderance comparable to that which
was coveted by Germany and which she sought
to attain by means of aggression and force."
— January 29, 1920.
Through whose efforts, then, has this been accom-
plished ?
Through our efforts, on the advice of our Experts !
Sir Oswald Stoll wrote in The People^s Credit
published early in 1916 : —
" Will our Government rise to the occasion,
and with the necessary encouragement of regu-
lated enterprise obtain that indisputable world-
power in the interests of our safety and inde-
pendence which one great nation has SO FAR
FAILED TO OBTAIN WITH BLOOD AND
IRON AND * FRIGHTFULNESS,' BUT WHICH
ANOTHER NATION MAY YET OBTAIN BY
11
12 "BROADSHEETS" ON NATIONAL FINANCE
MEANS OF DOLLAR BILLS? Or shaU we
lie rocked in the cradle of the deep asleep, or in
the midst of danger bury our head in sand and
refuse to believe what, having blinded ourselves,
we cannot see ? "■ — Chap. VI., page 153.
The People of the United States, as a People, are
no more to blame for the present situation than are the
People, in general, of the British Isles.
TO THE LORDS OF THE
TREASURY
BEFORE it is too late examine well the verbal coun-
ters used by those financial experts who are powerful
enough — if their views are endorsed — to direct British finan-
cial poUcy.
Begin with the speech of Jan. 29 made by THE
RIGHT HON. REGINALD McKENNA. This speech is
suggested by way of compliment to Mr. McKenna as, admit-
tedly, the best known of the powerful men of to-day who
are skilled in conventional High Finance.
The following are a few extracts from it and notes
thereon : —
" The most popular prop>osal for reducing prices is to
fix a limit to the currency note issue."
NOTE. — Here the term " currency " is used as equiva-
lent to " legal tender for the payment of any amount "
{vide Treasury Notes).
** What is the relation between the increase of currency
and high prices ? '*
NOTE. — Here the term *' currency " means media of
exchange in general^ including bank deposits in
their character of spending poxcer.
"It is an accepted doctrine that there are three fac-
ts
14 "BROADSHEETS" ON NATIONAL FINANCE
tors governing the price of commodities, demand, supply
and cost of production."
NOTE. — Here the terms demand, supply and cost of
production are limited to the commodity side of
the facts. The term " price " is not defined but
is treated as quite understood, and its character
as A SPECIFIC QUANTITY OF LEGAL TEN-
DER OF UNCERTAIN QUALITY {also subject
to demand, supply and cost of production) is entirely
ignored.
" Again, chiefly owing to higher wages, cost of pro-
duction has risen greatly, but in the sequence of events
it has generally followed, not preceded, the higher prices."
NOTE. — There is ambiguity in the word " owing.''*
However, Cause must always precede Effect. There-
fore, as there is a connexion between cost of pro-
duction and higher prices, and the higher cost of
production has " followed, not preceded," the higher
prices, the latter must obviously be the cause, not the
effect, of the higher cost of production, which is not
therefore " chiefly owing to higher wages." More-
over, " higher wages " being included in the term
" cost of production " mu^t also be caused by higher
prices.
Thus wherever {as in the United Kingdom
to-day) higher prices are caused by Legal Tender
of a low standard or quality, e.g. paper mainly,
instead of gold, Legal Tender is the underlying
cause of higher costs of production, higher wages
and higher prices ; which three factors then work
in a vicious circle of their own.
"Demand, measured by the purchasing power of the
public, has increased enormously."
"BROADSHEETS" ON NATIONAL FINANCE 15
NOTE. — Here '* demand " as subject is particular in
a logical sense and concerns only the commodity
and services side of demand facts. It entirely est-
dudes demand FOR purcheuing power {not neces-
sarily legal tender) BY the public.
** As demand grows prices rise."
NOTE. — But prices {in a transaction as distinct from
a quotation) are Legal Tender. Even while *' demand
grows " prices may FALL if the Legal Tender
is changed in quality from paper to gold.
** First of all I will take the figures of currency."
NOTE. — Here " currency " is synonymous xcith both
limited and unlimited legal tender t *' i.e., gold,
silver, copper coin, and bank notes.*''
The speech estimates that currency (in the last-named
sense) held by the public in 1914 was £53,000,000, as against
£202,000,000 in 1919.
NOTE.— The speech does not indicate that the Z5S,000,000
of 1914 equalled more gold than did the whole
£202,000,000 of 1919.
" The actual spending power of the public is gauged
by the total amount of currency in circulation added to
the total amount of bank deposits."
NOTE.— The term ''the public** is used in the sense
of ** the community as a whole " and its *' actual
spending power ** is said to be the full amount of
currency in circulation, plus bank deposits, WITH-
OUT ANY DEDUCTION WHATEVER FOR
INDEBTEDNESS!— not evendeduction of the amount
of a cheque in the post, although the cheque may
reduce deposits to thai extent twice over : {I) by
wiping out a credit in one bank and (2) by can-
celling a loan-deposit in another.
16 "BROADSHEETS" ON NATIONAL FINANCE
— and so on through the speech, part of which, of course,
is masterly and unassailable, but one further proposition
in which must be noted :
" An arbitrary limitation of currency would merely inflict
intolerable inconvenience upon the public.'*
NOTE. — This is true only if the term " currency " means
" medium of exchange.*' It is false if " currency "
is intended to mean " legal tender.''
Increasing media of exchange enable more ex-
changes to he ejected.
Increasing inferior-quality legal-tender, in fur-
ther depreciating the standard of value, enables
FEWER exchanges to be effected, although the nom-
inal amount of the total of the prices paid for the
same quantity of commodities and services becomes
actually higher.
The darkest hour is before the dawn ! It is still com-
paratively easy for the £ sterUng — made sound legal ten-
der — to become the medium of exchange of more inter-
national trade than ever before, dominating even the almighty
Dollar !
But it cannot be done upon principles which are a
tissue of fallacies, all of which operate against this country
and in favour of those persons (if any) who are determined
that it SHALL NOT BE DONE.
TO THE SECRETARY
TO THE TREASURY^ U.SA,,
MR. CARTER GLASS
BEFORE your appointment you were " sound " on bank
note issues. That statement is made on the strength
of utterances of yours reported in The Nero York Commercial
and Financial Chronicle.
Since your appointment you appear to have " missed
your way."
You have not corrected the financial blunder made over
Federal Reserve Notes.
Not only so, but you are going to convert that blunder
into a BOOMERANG WHICH, AFTER HITTING
HALF THE WORLD, INCLUDING GREAT
BRITAIN, WILL RECOIL ON YOUR OWN
COUNTRY, BRINGING BACK WITH IT THE
REPROACHES OF EUROPE UNDESERVEDLY
UPON THE AMERICAN PEOPLE.
The stupendous banking obhgations outstanding in the
United States (despite your gold holdings) are straining even
the vast resources of the Federal Reserve Banking System I
NEARLY $3,000,000,000 in Legal Tender Federal
Reserve Notes are in active circulation.
The issue of Federal Reserve Notes as Legal Tender in
discounting " legitimate paper, with bankers' acceptances or
bankers' endorsements " was based on the principle that :
" As the Government Banks from time to time
buy this paper, the volume of their circulating notes,
17 B
18 "BROADSHEETS" ON NATIONAL FINANCE
which they issue in payment, increases, while on the
other hand, when they collect this paper at its maturity
and thus reduce their holdings of discounts, their out-
standing circulation decreases." — Quoted from pamphlet
isstied by the National Monetary Commission Document ,
No. 402, entitled ''THE DISCOUNT SYSTEM IN
EUROPE, by PAUL M. WARBURG^
But it is now clear to you that Legal Tender Notes do
not decrease in circulation in accordance with this
specious statement.
Yet the Federal Reserve Note Circulation MUST BE
CONTRACTED! HENCE YOU ARE NOW CAUSING
CONTRACTION OF 40 to 50 MILLIONS WEEKLY BY
REFUSALS OF CREDIT FOR BILLS ON EUROPE.
THIS AFFECTS ADVERSELY THOSE OF YOUR
PEOPLE WHO MUST SELL IN ORDER TO COM-
PLETE DEALS CARRIED OUT WITH BORROWED
MONEY. BEFORE THEY DO THIS THEY CANNOT
EVEN GET CLEANLY OUT OF BUSINESS.
The Dollar itself is greatly depreciated through Federal
Reserve Note inflation. It is base coin compared with the
pre-war dollar. Its purchasing power, as evidenced in high
prices of commodities and services, is so much below that of
the pre-war dollar that wage-earners throughout the United
States are seething with unrest !
Your strictures on credit enable Exchange Dealers to
" peg " the British Exchange down to 3 dollars 20 cents
(depreciated dollars) as the equivalent of £ sterling.
$3.20 buys next to nothing in your country, yet that is
what you want to send to this country for £. As we could
not, even if we would, accept this, YOU ARE IN EFFECT
APPLYING A FINANCIAL BLOCKADE IN RESPECT
OF FOOD and RAW MATERIALS, ALTHOUGH UPON
THOSE RAW MATERIALS MANY OF OUR MANU-
FACTURES AND EXPORTS DEPEND I
"BROADSHEETS" ON NATIONAL FINANCE 19
Your bankers ** will accept bills and give credit, only
subject to the receipt of payment from this (London) side."
THIS IMPLIES TILVT FINANCIAL BLOCKADES
FACILITATE PAYMENT 1 1 1
It proves how grievously mistaken you are. — It is not
this side of the pond which keeps your credit expansion up. —
It is your own side.
In stopping your Exports you will find this out. Exports
are vital to your financial system in its present conditions.
The Credit Inflation is occasioned by a fallacy and is main-
tained because YOUR OWN PEOPLE CANNOT PAY.
THE FOLLOWING IS THE FALLACY UNDERLY-
ING YOUR FEDERAL RESERVE NOTE SYSTEM, A
FALLACY NOT OBSERVED BY PAUL M. WARBURG :—
TRADER No. 1 sells value A. to Trader No. 2 and
draws a bill on Trader No. 2 which a bank endorses
and which he discounts for federal reserve notes.
TRADER No. 2 adds B value to parcel A and
sells the lot to Trader No. 8, drawing on No. 8 and
discounting, as in the previous case.
TRADER No. 8 adds C value to B plus A value
and sells out to a Consumer who pays in federal reserve
notes.
Out of these notes No. 8 meets the Bill drawn on
him by No. 2 ) the Bank releases the Bill, and takes
the notes out of circulation.
The notes which thus have really stood for values
A and B go out of circulation at the same time as A and
B go out of existence.
NOW MARK THIS : Trader No. 2 meets the Bill drawn
on him by No. 1, NOT with notes obtained from the sale
of AB.
Those notes he had already, perforce, put back into
his business.
He must now make sales of other goods before he can
20 "BROADSHEETS" ON NATIONAL FINANCE
meet on its maturity the Bill drawn on him by No. 1. These
goods he sells for Bills which he discounts for NOTES WITH
WHICH HE WOULD LIKE TO MEET THE MATURING
BILL, BUT HE CANNOT SPARE THE CASH FROM
HIS BUSINESS AND MUST HAVE THE BILL RENEWED
AS THE ALTERNATIVE TO FAILURE ! ! 1
That is the point at which inflation complete and com-
pelling is injected into your Circulation !
You cannot CONTRACT that Circulation without
Disaster !
You cannot EXPAND that Circulation without Disaster !
THAT IS YOUR PROBLEM !
By hitting Europe you will expedite — against your
own people — a dramatic and chaotic solution of that problem !
—AND LEAVE YOURSELF WITHOUT TIME TO APPLY
A SANE SOLUTION.
Like a financial Cranmer, Recant ! Bring your Legal
Tender Notes to parity with Gold. Request the British
Treasury to do Ukewise. Do it by forcing the Cheque
System and discouraging the use of Legal Tender, cancelling
the surplus out of revenue or loans. Then compel Exchange
Dealers to " peg " the Exchange Rate at par, making a scale
of different charges for special services in transferring credits,
the smallest charges to be made for discounts connected
with the export of raw materials on which those countries
which owe America money base their exports.
To find compensation for producers who would suffer
by the fall in prices, reconsider the true functions and nature
of Credit.
TO LORD INVERFORTH
AS one of the public addressed by you through The Pall
Mall Gazette on Monday, Feb. 9, I take leave to
comment upon some of your observations.
You prove that we have incurred '* a large debt to
foreign countries, principally the United States," through
not having paid for Imports by Exports.
You ignore the gold we sent and our sale of outstanding
debts to ourselves in the form of foreign securities, which
liquidated so much of the debt.
You ignore the fact that so much of the debt is incapable
of injuring us at the present time because it is in a state
of suspended animation in the form of long and short-
term securities accepted from us by United States Inves-
tors.
And you parade this debt as the " REASON WE ARE
PAYING TO THE UNITED STATES, OVER AND ABOVE
ANY INCREASE IN PRICE DUE TO THE GENERAL
RISE IN PRICES. 5s. MORE FOR EVERY £l's WORTH
OF COTTON, OR WHEAT, OR OTHER COMMODITY."
This is the strangest logic of all I Because G.B. owes
U.S. a debt which he has made special arrangements about,
any further transactions between the two parties shall
assume that the money of G.B. is bad as compared with that
of U.S. I
That conclusion is wholly unwarranted.
21
22 "BROADSHEETS" ON NATIONAL FINANCE
THE FACT THAT WE ARE IN DEBT TO THE
UNITED STATES IS NO REASON WHY CLAIMS TO
POUNDS STERLING SHOULD BE RATED UNDER
PAR WHENEVER THE POUND STERLING WHICH
IS ENFORCEABLE BY LAW (i.e.; legal tender) IS
REALLY AT PAR.
The remedy for those high prices which are due to an
adverse exchange is the prompt restoration of legal tender
to parity with gold. If this is not done, then, quite apart
from the debt we owe for what we have had in the past,
the next £100,000,000 worth of commodities which we buy
from the States is going to represent one-third of that amount
in pre-war commodity value. (The bujdng power of the
dollar in U.S. is 42 cents !)
If, on the other hand, it IS done, then, despite the debt we
owe for what we have had in the past, the next £100,000,000
worth of commodities which we buy from the States will
represent more than that in pre-war commodity value to
the extent that the pound sterling will go to a premium in
terms of a really depreciated dollar, less the increase in
prices due to legitimate supply and demand, as apart from
the increase due to tampering with legal tender.
Bitter consequences await neglect of this principle for
the sake of Exchange Profits.
If America to-day wishes to pile up sterling credits
here, it can do so at 3 dollars 30 to the £l.
Our EXPORTERS of coal and raw materials which
this country NEEDS can convert the credits they so acquire
in the States into sterling at the same rate.
Their profits from this source make them opposed to
the restoration of our Legal Tender and the Exchanges.
BUT THEY ARE SELLING THE COUNTRY'S
BIRTHRIGHT FOR A MESS OF POTTAGE.
THEY ARE BRINGING THE COUNTRY'S MANU-
FACTURING INDUSTRIES TO A STANDSTILL!
"BROADSHEETS" ON NATIONAL FINANCE 28
THE PLEA THAT THEY ARE RESTORING THE
BALANCE OF TRADE AND PARITY OF EXCHANGE
IS LIKE A MOCKERY OF THE DYING !
TO THE MASTER OF THE MINT
IF you were not a Government Contractor you would
now have to go out of business. For (1) you cannot
buy your raw materials cheaply enough to turn your goods
out at a profit ; and (2) the business of coining token money
cannot be conducted without profit (i.e., seigniorage) seeing
that you must be prepared to meet such coins with their
full face value in (sound) legal tender.
As you are a Government Contractor, however, you
are permitted to reduce the quantity of materials which
you have hitherto used and to call the resulting goods or
coins, so devalued, by exactly the same name.
In other words, the silver is going out of our token money,
just as, less hterally, the housewife finds the bread, butter,
eggs, sugar, and cheese going out of it ; as the furnisher
finds the carpet, oilcloth, and utensils going out of it ;
and as the business man finds the real business going out
of it.
Statesmen tell you that, as a matter of fact, all these
commodities have gone " up " ; but YOU know that our
money has gone "DOWN." You use very Uttle gold (if
any) because you lose so much on every sovereign that
you mint now. And now you are to reduce the silver in
the silver coins.
You know, in fact, that In our ALLEGED money,
the price of MONEY has so risen that such money has
24
"BROADSHEETS" ON NATIONAL FINANCE 25
become too expensive to make without a process equivalent
to debasement, or abrasion, or clipping.
The consequence will be that all prices will slowly but
surely continue to rise reciprocally with this ** fall " of
Legal Tender, in so far as token money is legal tender.
The reduced silver in the coins will have to be reduced again,
for the same reason as the present one, if our present mone-
tary policy is continued.
Like previous Masters of the Mint, such as Sir Isaac
Newton, you know the whole story of Currency Depreciation.
The expansion period is a monetary paradise.
The money, though it costs little or nothing to mint
or print, seems to the people as good as gold. It pays the
soldier, builds motor transjjort, renews railways, Ufts the
mortgage off the farm I It would even build the houses
wanted by the Wigan Corporation I It serves all — or nearly
all — the purposes of the people who have it. It is such
easy money. Nobody is afraid to buy anything with it
because he is sure of being able to sell whatever he buys
at a profit. In the boom the cry is raised by apparently
intelligent people : " High prices mean prosperity ; the
higher the better I " As they rise, the women (Uke the
Southern women of the American Civil War) go to market
with basketfuls of money ; few notice that the goods which
they bring back would fit into a purse I Who remembers
that in sane-currency days the money might fit into the
purse but the goods required several baskets ? Still the
prices rise, while purchases grow smaller. Vital goods
become unobtainable. Wages rise until they are out of
sight ; for industry after industry stops ; as your silver
industry eventually must.
Then say the Powers that be, PRICES MUST COME
DOWN AT ANY COST I
But it is found that hardly a business concern left in
the country could keep going with lower prices.
26 "BROADSHEETS" ON NATIONAL FINANCE
Expenses, Uke cost of labour, overwhelming taxation,
high local rates, etc., cannot be reduced !
Contract the currency ever so slowly and the people
miss THE WONDERFUL MONEY. Scarcer and scarcer
it becomes. Everybody in trade fears to buy lest he should
be unable to sell and thus unable to get his money back,
to say nothing of a profit.
Goods in stock at high prices cannot be parted with at
low prices, eager though the trader may be to get the money.
Wage-earners grow angry over the equation between high
rates of pay and no work on the one hand and no work
and low rates of pay on the other.
North, South, East, and W^est, every one somewhere
is forced on to the horns of some particular dilemma !
Only once has the problem been solved without tragedy
upon tragedy !
The United States was saved from the Greenback Crisis
by abundant harvests which a starving Europe was able
to pay for out of an abundance of gold and manufactures.
That is not our position to-day 1
What the gold did was to restore soundness to the Legal
Tender 1
(The gold had this effect on the Greenbacks, irrespec-
tive of its effect as a commodity on the balance of
trade.)
What WE must do is to restore soundness to OUR Legal
Tender 1
Thanks to our Cheque System, we can do this at once I
The contraction to gold values can be coimterpoised by
the investment of productive properties with the privilege
of credit-right, interest free and otherwise free, except for
certain small charges and the creation by the recipients
of a Treasury Reserve equal to one-twentieth of the total.
The credit would create abundance, in excess of its
redemption requirements, because it would be assigned
** BROADSHEETS " ON NATIONAL HNANCE 27
wholly to productive purposes or it would discharge obliga-
tions which would be driven to productive purposes.
The principle of economic equilibrium could be applied
to prevent over-production or over-competition in any
particular industry.
The Industrial Armies menacing the State would have
no " case," or support from rank and file, in the enormous
com[)etition for wage-earners which production, on this
great and varied scale, would estabhsh.
The £ sterling would be the currency of the world 1
The British Empire has never been so stable and pros>
perous as it would be when (under productive credit-right)
it had grown into a vast Imperial Credit Union.
TO THE SEWING COTTON COMMITTEE
I HOLD no brief for Messrs. Coats'. Far from it.
But I am much interested in our Legal Tender Policy
and its (now intensive) cultivation of chaos in our trade
and manufactures.
Therefore, I desire to call your attention to two points :
(1) IN 1913 £8 175. 9d. would buy an oz. of gold or a
correspondingly substantial quantity of any other
commodity.
IN 1919 £8 17*. Qd. will buy 57 per cent, less than
an oz. of gold, or a correspondingly LESS substantial
quantity of any commodity other than gold.
This means that the purchasing effectiveness of 1919
money is 57 per cent, below that of 1913 money,
APART FROM EFFECTS ON PRICES PRODUCED
BY PURELY-COMMODITY SUPPLY AND DE-
MAND I
It means also that it is highly fallacious to call
£8 17*. 9d. of 1913 THE SAME THING AS £8
175. 9d. of 1919 and THEN to reason that prices are
jumping upwards SOLELY through relations of GOODS
AND PROFITS, and not in any serious degree through
CAPERS OF THE MONEY IN WHICH THE
PRICES ARE QUOTED.
(2) The net profits of Messrs. Coats' are given as follows : —
£2,778,998 in 1918
£8,694,011 in 1919.
28
"BROADSHEETS" ON NATIONAL FINANCE 29
But as the purchasing effectiveness of the money
of 1919 is 57 per cent, below that of the money of 1918,
the net profits of 1919 by comparison with those of
1918 can only be TRULY sUted as
£1,588,424, or £1,185,574 LESS than those of 1918,
when there were no complaints.
WARNING 1 The more obstinate that we become in our
disregard of basic realities, the more dire will be the
maturing consequences.
M
TO FINANCIAL CRITICS
A Leader Writer says : —
R. ROBERT BENSON, who possesses the unusual
advantage of combining practical business experi-
ence with a thorough knowledge of the principles of econo-
mics, dealt exhaustively with the subject, and his conclusion
is that expansion of currency is an effect of high prices
unless forced into circulation, as it has been in Germany
and Russia, when it becomes a cause."
With all respect for anybody who has a thorough
knowledge of the very elusive principles of economics, I
submit that any currency which is legal tender for the
payment of any amount, and which it is therefore an offence
against the law to decline to accept in pajnnent, is a forced
currency, being forced by the Government into circulation,
that therefore the evil effects of a forced circulation are
in operation, and that the professors who assert that our
currency is as much forced as it is in Germany and Russia,
that it is only a question of degree, are quite right.
80
THE CARDINAL ERROR OF
SOCIALISM
TO MR. ERNEST BEVIN
YOU are reported by the Press to have said : — *' Mr.
Lloyd George charges us with a desire to overthrow
the capitalist system. For once in his hfe he is right."
You would destroy the Capitalist System. Yet is
destruction a sound policy?
Destruction on the appalling scale of thd world-wide
war has done but little good service to the nations generally.
Beyond an exceptionally well-favoured few who have
demonstrated that gigantic fortunes may be swiftly made,
the condition of the people in any of the warring nations
seems to be rather worse than better than it was before
Destruction on the grand scale obtained its wondrous
opportunity.
These gigantic fortunes which have excited so much
envy represent very few pounds per head of the population,
and they are pounds which are incapable of distribution
because they subsist not positively, but negatively, as
evidences of debt.
For the wage-earner, you claim quite properly home
comforts, leisure, enlightenment, entertainment, and an
adequate nest egg for old age — a higher standard of living
during working years, which can be maintained, without
work, in the evening of a sufficiently well-spent life.
31
82 "BROADSHEETS" ON NATIONAL FINANCE
Yet individuals who have attained that standard are
anathema to you, and the system by which it has been
attained you would destroy.
Your logic is hopelessly at fault.
What you really want is that every individual wage-
earner shall have the opportunity to attain to a high standard
of hving. That being so one would imagine that you would
endeavour not to destroy but to eoctend the system which
has proved itself capable of giving to individuals that con-
dition of Ufe.
Instead, however, you would destroy that system and
substitute one of socialism, or communism, or common
ownership, which does not even aim to promote the object
which you have in view.
SociaHsm is diametrically opposed to that Nation-wide
Individuahsm which you really want.
Your efforts to make the poor rich by making the rich
poor would end in making every one poor. That is what
communism has always done.
But nation-wide individualism can make all individuals
richer. How ? Thus : —
In effect, the Capitalist System until now has been a
closed System.
Open it 1
It contains a pearl of great price — the instrument of
nation-wide individuahsm.
That instrument is Credit guaranteed by the Nation
through the Treasury. Manufactured credit normally is
written up in Books against Promises to Pay guaranteed
by Paper Securities. National Credit may be written up
in Books against Promises to Pay secured by Productive
Properties and guaranteed by the Government. This is
made possible by the CapitaUst System.
Thus, instead of transfers of the credit of individuals
being made to the Government on loan at no interest (as
"BROADSHEETS" ON NATIONAL FINANCE 88
Lord Buckmaster has proposed) the Govcniment would
localize transfers of national credit on loan to individuals
at no interest.
But the Credit would have to be used solely for the
creation of its equivalent in new productive capital, in
order to multiply production, cause competition for wage-
earners, make labour so relatively scarce that its value
would eventually make all human units function fittingly
as intelligent directors of highly productive machines instead
of being direct hewers of wood, drawers of water, beasts of
burden, matter without mind.
The necessity of preserving economic equilibrium
between particular kinds of production and consumption,
combined with the right of every producer to claim credit
for further production, would create many new forms of
production.
The invested capital which would be displaced in the
operation would require new forms of investment for income.
This would furnish ample funds for cheap borrowing
and social r3forms.
Investment capital would be made dynamic. None
would remain static and parasitical.
The vast debit against industry, which evils of the
closed capitalist system have in course of time created,
would thus be hquidated by the virtues of the open system
as exemplified by productive credit — credit as productive
as that which the war created was destructive, credit which
would finaUy produce contentment and prosperity for all.
Through extension of the Cheque System for economiz-
ing the use of legal tender money, gold value would be
restored, as the basis of the credit scheme.
Gold values would lower the proportion of high prices
which reduces suppUes.
Increased suppUes, included in more production, would
lower that portion of high prices which is due to scarcity.
o
84 "BROADSHEETS" ON NATIONAL FINANCE
Producers who would otherwise suffer through the fall
in prices would be saved by the privilege of the new and
cheap credit.
The COST OF LIVING would be REDUCED, whilst
the COMPETITION FOR THE SERVICES of the WAGE-
EARNER would be increased.
The scheme would apply to any country according to
its capacity for adopting our cheque system on an extended
scale, or any substitute therefor except the issue of legal
tender notes.
This country would be safeguarded against future
financial embarrassment by the payment for the guarantee
of the nation which would be made for his share of credit,
by the producer, in a fee of one-twentieth part of the amount.
These fees would accumulate in a Treasury Reserve.
This would be permanent while the credit itself would
be temporary ; in constant process of redemption by instal-
ments fitted to the conditions of each case.
Before the Act could itself operate the moral effect of
its appearance on the Statute Book would immediately
improve the general economic situation.
''THE ECONOMIC CONSEQUENCES
OF THE PEACE''
BE as kind to yourselves as you are asked to be to the
Germans I
Asked by whom ? By John Maynard Keynes, C.B.,
in his book entitled The Economic Consequences of the
Peace. This book is so fine a piece of special pleading
that its author is now the economic notabihty of the day.
But in proving what the Germans cannot pay it impUes
inevitably what the British cannot pay I
It proves not only that Germany could not pay
£8,000,000,000 under the indemnity clauses of the Peace
Treaty, but that even were the sum reduced to £2,000,000,000,
and £500,000,000 of this sum set off against the surrender
of property under the treaty, Germany could not even then
pay the balance of £1,500,000,000, imless it were not to
carry interest pending its repayment, and were payable in
thirty annual instalments of £50,000,000, beginning in 1928.
This statement is quite true, as events will prove. But
why cannot Germany pay under the terms of the Peace
Treaty ? Because her mode of payment involves the accu-
mulation of the bulk of both interest and princip€d at com-
pound interest ; and at 5 per cent, compound interest a
capital sum doubles itself in fifteen years.
As Mr. Keynes rightly judges : ** It is as certain as
anything can be that Germany cannot pay anything
approaching this siun " — in that time.
35
86 "BROADSHEETS" ON NATIONAL FINANCE
Geemany's Difficulty
Nevertheless, there is nothing in his book to prove
that Germany could not pay the whole of the indemnity of
£8,000,000,000, without interest, by 160 payments of
£50,000,000 per annum, instead of only £1,500,000,000 by
thirty such payments.
It cannot be contended seriously that Germany cannot
pay 105. per annum per head of her population (the 10s.
decreasing inversely with any increase in the number of
heads).
The point is that Germany cannot pay unless she is
relieved of the stupendous effects of compound interest.
But what about the enormous obUgations of the working
section of yourselves (the British people) to the investing
section ?
Are not those obUgations accumulating at compound
interest just the same ?
The nation as a whole has undertaken to pay them to
the investing section. It is, therefore, in honour bound to
pay 1 But can it possibly pay without a striking modifica-
tion of the financial system underlying industry ? Its war
debt of victory is £8,000,000,000.
But who is asking that only £50,000,000 per annum for
160 years shall be paid ?
Who is pointing out that even that would be a greater
hardship on one section of the British population of 46,000,000
than upon the whole of the German population of nearly
twice that number ? Are not you, the British people, being
told that if you consume less, spend less, and produce more,
you will be able to redeem this debt of £8,000,000,000 — a
greater debt than Germany's war debt, plus an indemnity
of £2,000,000,000 ?
When the war debt and privately invested capital,
which drew interest and redemption, were hmited to pre-war
dimensions, one-third of the population was constantly on
"BROADSHEETS" ON NATIONAL FINANCE 87
the verge of starvation ! To-day the war debt is eleven
times greater in amount and private investment funds are
vastly increased, whilst the working section of the com-
munity, which must grind out the return upon them, is
actually smaller.
Man and Machine Power
The development of machine power per man makes
production capacity greater only in such occupations as lend
themselves to machine power. The total production capa-
city falls far short of the colossal requirements, and a desper-
ate conflict between the investing and working sections of
the community is being rendered inevitable by the folly
which expects that those requirements can possibly be met
without help on equally colossal lines for the productive
working section of the nation 1
Now, just as it is being asked that Germany shall give
promises to pay which shall bear no interest, but be redeemed
by thirty or more equal annual instalments of the capital
# sum which these promises to pay are to represent, I have,
during the past five years, been asking that promises to
pay, which shall bear no interest, shall be permitted to
British producers, and be redeemed by them by a specific
number of annual instalments totalling the capital sum
which these promises to pay are to represent.
They are to be based on a credit-right vested in pro-
ductive properties to half the gold value of such property,
and created as bank credits against that right. They are
to be used solely for productive purposes, so that production
may be multiplied in every conceivable way, short of destroy-
ing economic equihbrium, which an advisory council would
be formed to conserve.
Thus would the nation as a body, in permitting its
producing section to create easy credit, counterpoise the
debit which the nation as a body owes to its investing section,
88 "BROADSHEETS" ON NATIONAL FINANCE
and enable that colossal debit to be met honourably and
prosperously without confiscation or levies, predatory taxa-
tion, or a clash of physical forces.
BUDGETING FOR DISASTER
IT has been said that if the rent of every landlord, the
profits of every employer, the interest paid to every
capitalist, and the money value of all the paid labour engaged
In production, which represent the total wealth produced
in the United Kingdom in a year, were added together,
the sum would not exceed £2,000,000,000.
Yet of this production the Chancellor of the Exchequer,
in our curious scheme of National finance, proposes to take
£1,418,000,000 (for whoever may pay, the ultimate source
is production), and to distribute it mainly amongst unpro-
ductive workers in this country and abroad, in Mesopotamia,
Egypt and elsewhere, using, contingently, a comparative
trifle in redemption of National Debt.
The difference between £1,418,000,000 and £2,000,000,000
is £582,000,000 which is approximately the sum out of
which the entire producing conmiunity and their dependants
must defray their cost of living for the year.
But as £l per week for, say, 80,000,000 persons, for a
year, amounts to £1,560,000,000, the effort cannot succeed.
If one person could Uve on £l per week, which at the
present price of conmiodities and services is barely possible,
nearly £1,000,000,000 would have to be made up from
accumulated savings. "Twenty such Budgets" would
therefore mean that, in order to live, to redeem a debt of
roughly £8,000,000,000, accumulated savings, which unfor-
39
40 "BROADSHEETS'* ON NATIONAL FINANCE
tunately do not exist, to the sum of £20,000,000,000, would
have to be consumed. This is Budgeting per impossible ;
and yet it is to be tried.
The earmarked excuses are idle ones. Instance the
loss on the Post Office Services as the reason for making
the course of production harder.
Would it not be wiser to sell these services to private
enterprise for a good round sum supported by guarantees
of efficiency ? This would reduce the annual requirements
of the Budget by at least £50,000,000, and also provide a
handsome sum, by way of purchase price, for both the
monopolies and the Government property involved. This
price, accepted in the form of Government securities, would
either save interest, instead of incurring a loss, or, if cancelled,
would redeem debt. There are other national assets, and
municipal ones too, which ought to be dealt with in a similar
manner.
If the new Budget is necessary, the reaUzation of all
available assets is necessary also !
But is such a Budget necessary ? And is it possible
that to eat up unproductively the productiveness and the
accumulated wealth of the country, year by year, can " Leave
to our successors an ample revenue, and to our country a
national credit second to none " ?
What is the matter with national credit now if we but
use it to produce those instruments of production, productive
property of the greatest practicable variety, on which
national credit, both for cultivation and redemption, must
ever depend ?
On the use of credit, Mr. Chamberlain, out of his own
mouth, condemns his own Budget, in the words : —
" But a new creation of purchasing power based solely
on Government credit, uncovered by any increased produc-
tion of wealth, can only lead, if unchecked, to ultimate
disaster."
"BROADSHEETS" ON NATIONAL HNANCE 41
But it is on Government credit that the new creation
of Government purchasing power in this Budget is based
by nioans of values inflated by reference to a depreciated
standard created by the Government itself; and this credit
is not only uncovered by any increased production of wealth,
but is to be used with no pretensions to production and
with those destructive effects which lead, " if unchecked,
to ultimate disaster."
NATIONAL CREDIT IS SOMETHING WHICH MAY
BE USED PRODUCTIVELY BY INDIVIDUALS IF NOT
BY GOVERNMENTS.
The shceme of credit-right put forward early in the
war period by myself requires that credit so obtained shall
both be covered by existing productive capital and be
employed to the uttermost farthing either in the creation
of further productive capital or in the relief of charges upon
existing instruments of production.
No valid objections have ever been raised to the prin-
ciples involved. In the early stages of the war I was informed
by a City man that I had put my finger on the right spot ;
that the idea was known to be sound ; and that the attempt
would be made to kill it by SILENCE.
I said then, as I say now : ** Force of circumstances
will compel its adoption as the alternative to social up-
heaval." Such circumstances cast their shadows in such
Budgets as that of Primrose Day ! This Budget shows
how necessary are the gradual refunding operations which,
as good faith permitted, would be rendered possible,
imder a scheme of credit-right, by the release of investment
funds now burdening existing productive properties. The
rate of interest at which these operations could be carried
out would prove that Government credit is not rated to-day
at 7% because of anything that is wrong with national
credit. 8|% would attract all the funds required when
general productive industry was not only not being stifled
42 "BROADSHEETS" ON NATIONAL FINANCE
by predatory taxation and threats of a levy upon capital,
but on the contrary was endowed with a special privilege.
Taxation of the extraordinary nature of that provided
in this Budget is wholly unjustifiable on economic grounds.
It is economic folly to expect that the vast obligations of
the nation can be met either by its present limited produc-
tive capacity or by the appropriation of funds by means
of which that productive capacity might conceivably be
extended. It is also economic folly to expect, as certain
financial interests do, that the return from the industry
of those who must pay to those who must be paid, involved
in interest on the National Debt, redemption of the Debt,
Government expenditure, and private funds, invested and
to be invested, all with compound interest effects, is not
now far too great to be obtainable from the industries of
the country on orthodox Unes.
For this situation a remedy is needed ; but confisca-
tion is a futile and delusive expedient, not a remedy.
The true remedy Ues in helping, not hindering, industry.
The privilege of credit-right would furnish the neces-
sary help on the necessary terms. It would enable produc-
tion not only to bear all the burdens which must be budgeted
for, but also to yield the income which investors seek.
Confiscation, whether by taxation or by levy, is not a
remedy, but an iniquity !
When an outstanding credit is confiscated for the pur-
pose of canceUing a debit, it is a theft not only of principal
but of compound interest throughout all time I
No State ever survived the application of this pernicious
principle. No statesman ever apphed it without a grave
breach of trust.
In a Christian country the general conscience rests
upon the Ten Commandments. Individuals without such
a conscience often succeed, but systems of government
never I
"BROADSHEETS "ON NATIONAL FINANCE 48
Of debt, Mr. Chamberlain takes too narrow a view. He
believes that if we owe a debt to ourselves instead of to
America, " The burden of external debt will become a valu-
able national asset."
Fallacious use is made of the word ** National." It
is made to denote the whole nation, but connotes only a part.
If our internal debt is an asset, and the debt is so
colossal, why should it take such Budgets as this to enable
us ** to rise to the level of our great responsibility " — the
rebuilding of our national credit ?
The Budget contradicts the opinion that the debt is
a national asset. It shows it to be an asset to particular
individuals, but a grave liability to the productive com-
munity I Therefore the public must be considered as separ-
ate human beings, distinct from figures on a balance sheet,
in our national finance.
We should credit where we must debitj as, quite properly,
we debit where we must also credit. The fundamental
principles of Credit permit tliis policy in the interests of
production and national salvation.
A TAX ON TURNOVER
SUGGESTED MODIFICATION
SIR OSWALD STOLL'S INTERESTING PROPOSAL
WE have received the following communication from
Sir Oswald StoU :—
" My view of Mr. Chamberlain's opinion of a tax on
turnover is that it is not only accurate but is also a strong
condemnation of his own excess-profits duty and corpora-
tion tax. His objection to a tax on turnover is that it falls
again and again between the original commencement of
production and the time when goods produced reach the
consumer. This signifies that it either raises the price
at which goods can be produced or stops their production.
Now that, in my opinion, is exactly the effect of such taxes
as the excess-profits duty and the corporation tax.
" In applying any of these pernicious taxes the Chan-
cellor is either raising prices inordinately or decreasing
supplies. When the further raising of prices, by having
legal tender of a depreciated standard money as the measure
of prices, is taken into account, it is not too much to say
that the policy of enhancing prices and stopping supplies
is being pursued with an utter disregard for national econo-
mics ; that is, economics applied for the benefit of the
nation as individuals, not for the benefit in the nation's name
of a few international masters of organized finance in order
to make the bulk of this nation and of other nations their
civil, military, naval, industrial and domestic servants,
44
"BROADSHEETS" ON NATIONAL HNANCE 45
victims of one-sided considerations and supposed national
(?) progress. Taxation which will neither inflate prices nor
stop supplies is good ; and, as Mr. Chamberlain himself
implies, taxation which will raise already high prices or stop
supplies is bad.
'* A tax upon turnover, however, is a suggestion which
should make for a form of taxation saner than those forms
which leave the taxpayer with the burden of high unofficial
taxation, in the shape of unduly high prices, as well as the
high official taxation to provide for Government expendi-
ture inflated unduly by high prices.
A Tax on Finished Products
** E^ly last year I suggested a national tax to be paid
by the consumer of finished products. Many authorities
have shown that in any form of taxation the consumer
ultimately pays. In your special article of May 17 some
trouble is taken to prove it. Hence, if the consumer were
required to pay a consumption tax on every finished product
consumed, food included, he would merely pay directly what
he must otherwise pay indirectly ; whilst through this tax
being imposed in the place of taxes like excess-profits, cor-
poration tax and super-tax, which increase the cost of the
production of what he consumes, he would find himself
much better off.
" Thus, costs of production would be lower by the
avoidance of the cumulative effect of increases at every
stage of production. Costs of production being lower,
what the consumer purchased for consiunption would be
actually cheaper, and, therefore, could be sold to him cheaper.
Such products being cheaper there would be a greater demand
for them. The greater demand, in face of lower costs of pro-
duction, would cause an increase in supplies, and increased
supplies would tend to the further lowering of prices.
Increased production induced by lower costs and greater
46 "BROADSHEETS" ON NATIONAL FINANCE
demand would decrease unemployment and find work in
places where housing wastage is now going on, through
houses being available where there is no work to be had
and work obtainable where there are no houses to be had.
" The entertainments tax is not so much a tax on turn-
over as a tax upon the finished product, such as I suggest.
It is clear that if the entertainments tax had to be provided
on the production of the entertainment, whether that pro-
duct were sold or not, it would promptly put an end to the
production of entertainments. The cost of such enter-
tainments would be so increased and the market for them
when produced would be so uncertain that very few man-
agers could afford to take the monetary risk involved in
their production. But the entertainments tax does not
increase the cost of production, and is only imposed on
the consumer of the product. So a tax on all finished pro-
ducts would admit of production at the lowest possible
cost and be payable only in respect of the products sold as
well as payable only by the consumer. All persons being
consumers the tax would be a truly national one.
Expected Yield
" Of course, the amount of a yield of 2d. in the 1*. tax
on sales of all finished products would vary with the pur-
chasing power of the pubUc generally. With the public
prosperous it could yield nearly £400,000,000 per annum,
estimating the consumption capacity of the nation at £l
per week per person of the total population.
*' The Government could avoid the coming crisis (the
most terrible in history) and make the people even more
prosperous than such a yield requires, if it would apply the
now necessary heroic measures which (1) would rectify our
legal tender money and (2) vest credit-right in productive
properties, for the creation of further productive machinery
or the relief of existing charges against production. This
"BROADSHEETS" ON NATIONAL FINANCE 47
creation of productive credit the law of credit compensa-
tion, after the war creation of destructive credit, absolutely
and urgently demands. It would make the whole com-
munity prosperous.
" The entertainments tax was a dangerous impost to
place upon a restive people. The bulk of the people were
so prosperous, however, that they paid it willingly. Those
who could not aiford to pay it caused many inferior houses
of entertainment to close down, and, being driven from
the pictures, these displaced members of the public did not
help to minimize unrest. Still, if the people are prosperous,
they are willing to pay a tax of this nature. That fact
the entertainments tax has proved.
Sbiall Cost or Collection
" A tax upon finished products is, therefore, a clear
way out of his difficulties for any Chancellor who prefers
the general prosperity of the people to the mere domination
of the people by organised international finance. The
cost of collection by stamps on purchases, by audited ac-
counts, and other means applied in the collection of the
entertainments tax would be small in comparison with the
yield. But such a tax under the credit conditions which
it is in the power of the Government to create would save
the State."
[Sir Oswald Stoll's suggestion is worthy of careful
consideration. We would point out, however, that from
the consumers' standpoint it would matter little whether
there was a small tax on the various processes of produc-
tion and distribution, as we advocated in our issue of the
17th inst., or a comparatively heavy tax on the finished
product. Sir Oswald Stoll suggests an impost of 2d. in the
shilling. That is a very high charge, especially upon small
purchases. We would further point out that, in our article
48 "BROADSHEETS" ON NATIONAL FINANCE
of the 17th irst., we expressly exempted from the proposed
tax business transactions, such as theatre tickets, transfers
of property and shares, akeady liable to comparatively
heavy special taxation. — Editor, Financier.]
WHAT MUST WE DO TO BE
SAVED?
JOSEPH'S coat of many colours was a model of sartorial
propriety compared with the coat now being worn by
the British Public, as represented by Parliament.
One patch of the garment, Nationalization, does not
quite harmonize with another patch. Existing Bureaucracy,
and is in violent conflict with Private Enterprise, which
again, alongside Communism, is a chromatic outrage, as
great as the patch called Individualism ; the latter, curiously
enough, being represented by a single patch, instead of by
many.
As required by the philosophy of clothes, this motley
coat colours the thoughts and actions of all the members
of the body which wears it.
This may be exemplified by passing from figures of
speech to figures of men.
Next to Mr. Lloyd George, the biggest figure in Parlia-
ment is probably Mr. Bonar Law. His big mind has in con-
sequence become imperfectly kaleidoscopic. His thoughts,
placed together, show different colours, which will not
blend. Yet the fate of the country is largely in his hands.
He believes in Individualism. Has he not said :
** The whole prosperity and growth not of this nation
alone, but of all the nations that have arisen, has
been based on individual initiative and individual
49 D
50 "BROADSHEETS" ON NATIONAL FINANCE
effort — (hear, hear) — and if anyone believes that you
can get the same results by any system of officials they
know nothing of history and they know nothing of
human nature — (hear, hear) " ? (Albert Hall, Friday,
May 7th, 1920.)
That is admirable, as his hearers also thought.
He believes that Individualism is the vital instrument
of national prosperity and growth.
YET IN THE SAME SPEECH HE DEFENDS THE
NEW BUDGET!
The colossal levy of the Budget can be made " only
by getting it from Industry."
" They (the (Jovernment) must make a big hole in
this debt."
" The people to make the hole were those who were
making money."
That is, the people who are keeping the country
going must be deprived of their resources because the
others have no resources which the Government can
deprive them of.
Previously in the speech he had expressed himself
as " not sanguine enough to believe that this period
of prosperity would not sooner or later be followed by
dull times." No wonder 1
This remark is a grim joke ; worthy of Thomas Hood's
" Ben Battle was a soldier bold.
And used to war's alarms,
But a cannon-ball shot off his legs.
So he laid down his arms."
When one is shooting off the legs of Industry, it is safe to
predict that Industry will collapse.
There is glaring inconsistency between this Budget and
Individualism.
Why were the vast sums of the Budget required ?
Because " they could not reduce expenditure in that way
"BROADSHEETS" ON NATIONAL FINANCE 51
(dispensing with new and bringing back old departments).**
But would not Government expenditure and debt be
vastly reduced if every function now performed by the
Government and capable of being performed by private
enterprise were handed over to private enterprise, there to
bear its quota of the lesser taxation which the Government
would require, instead of helping to swell taxation to which
it makes no contribution ?
Activities transferred from '* under Government ** to
private enterprise would prosper and grow under that
*' individual initiative and individual effort," of which the
same results cannot be got (in Mr. Law's own words) " by
any system of officials."
Surely, to refrain from making such transfers, and to
prefer such a Budget, is to prevent full scope for in-
dividuality and ability ?
Is it credible then that in this speech Mr. Bonar Law
is reported to have said :
" Any attempt to prevent full scope for individu-
ality and ability would be ruinous to any nation which
cfUempted it** ?
That assertion is absolutely true ; yet the attempt is being
made with the approval of Mr. Bonar Law himself, without
whose support it could not be done.
But that is not all.
Not only does the Government refuse to transfer ex-
pensive public services to private enterprise, which would
reduce ex|)enditure and promote the valuable, vitalizing
quality of Individualism, but by means of an iniquitous
Budget it is establishing a permanent limitation to the
** scope for individuality and ability."
This Budget will in fact make a " comer *' in Indivi-
dualism. It will prevent absolutely the Individualism
which might become Nation-wide, because it will place in
a position of difficulty and embarrassment every individual
52 "BROADSHEETS" ON NATIONAL FINANCE
not in a position to command credit for the conduct and
development of his business.
It will hand over to a few Controllers of credit on a
gigantic scale the power to impoverish hitherto successful
men who by absorption of their business concerns at forced-
sale prices will be reduced to subsidiaries and dependents.
The somewhat bigger type, the live man with a fortune
made through the disorganisation of war, is a menace to
the growing control by great financial interests of the busi-
ness operations of the entire worid. Though this miUionaire
is small fry compared with controllers of thousands of mil-
lions, his existence sets back the plans of orderly progress
towards too-ambitious control in every country.
But this Budget will " scotch " him in Great Britain,
and put him where he is wanted ; whilst the mightier Croesus
sits back smiUng behind world-wide projects and a choice
cigar.
So are the lesser rich to be mocked by the greater,
while " Labour " (think of it !) applauds.
Finally, instead of contracting credit by indefensible
taxation, and penalisation of successful industry, credit
should be expanded for the express purpose of creating more
productive capital, i.e., instruments of production, upon
which the financial credit of the nation must rest ; for as
Mr. Bonar Law, however wrongly he applies it, very truly
says : " The financial credit of this nation is the rock upon
which improvement of any kind must be founded."
The Budget is the crux of the question.
Are our Statesmen to become cats' paws in financial
strategy ?
THE COMING CRISIS
WHO can deny that we are on the verge of a great
financial and economic crisis ?
Hundreds of enterprises are held up by costs too high
to admit of sane capitalization 1
Thousands of enterprises necessary to keep the economic
wheel revolving are on the brink of failure because they
cannot buy cheaply enough or sell dearly enough !
Buyers want lower prices. Sellers want higher prices.
All of us who are both buyers and sellers are in a
quandary.
Bankruptcy threatens ** commercial men in many
spheres '* if prices fall ; yet the call for a fall is wide and
deep.
Do we intend to walk open-eyed into the jaws of the
most terrible economic upheaval the nation has ever known ?
Occupying our minds en route with futile ideas of Capital
and War Levies which, if practicable, would strike the
country with sudden and complete industrial paralysis.
Financiers' Finance, with its checkmates by rival
groups, is ruining the country.
A number of Financiers no more make Finance than
a number of worldlings make a world t
National Finance has never had a chance.
Our Treasury's idea of it, in relation to the country in
general and the taxpayer in particular, is to Give Too Little
and to Take Too Much.
59
54 "BROADSHEETS" ON NATIONAL FINANCE
The aim of National Finance should be some prosperity
for all Nationals, not all prosperity for some Internationals.
Our new Budget will impoverish the National Rich,
remove them from the path of the International Rich whose
worid-plans their wealth menaces ; create emigration on
a great scale, through unemployment, for the furtherance
of those plans ; and leave the country to pass through the
valley of the shadow for generations to come.
The Chancellor should cancel both the Excess Profits
Duty and the Corporations Tax and also reduce both the
Super- Tax and the Death Duties.
He should be a shield for our defence rather than a
sword to wound us.
The shield exists could he but see it in a true conception
of National Finance and National Credit.
Because we are in debt Credit is being restricted.
This is financial madness from the National standpoint.
Credit may redeem Debt as Diamond cuts Diamond.
Credit must exist for the good of the people, that the
people may exist for the good of Credit.
Where there is Credit there is business.
Contract Credit and you contract business.
When Credit is expanded so is business.
Credit however is never to be desired for the sake of
Credit, but for the sake of the use to which it may be put.
In War : for Production, having for its end Destruction.
In Peace : for Production also, but having for its end
Construction.
World shortages of essentials created by the war are
being intensified and perpetuated by misconception and
misdirection of the true uses and principles of Credit. Demand
has ceased to be Effective I
In the relations of Interest to Credit High Interest
for Destruction and Low Interest for Construction are alone
soimd.
"BROADSHEETS" ON NATIONAL HNANCE 65
In National Credit God made both the principle and
the principal and Man made the interest.
Capital and Labour alike, Be warned in time !
For Production on the great scale a nation must provide
Abundant Credit at Negligible Interest Charges and reduce
Taxation of the Producer.
Production on the great scale will save us ; will make
the basis of the Internal National Debt sound. To do that
is more important than to repay the Debt.
Repayment may take place with advantage by easy
stages.
Out of Production on the great scale we can make
abundance of goods, remunerate labour with not only high
but real wages, establish credits abroad with which to cancel
floating and fixed foreign debt, bear taxation adequate for
Imperial Defence (the only justifiable government business
enterprise), and become a contented people.
Sound money, Credit-right and Private Enterprise
(made capable of nation-wide application) are the way to
general prosperity.
Unsound money. Limited and costly Credit and already
too much Public Enterprise, with the promise of more, are
the way to chaos and desperation.
This is a law of Human Nature :
" Invidious Restraint, under Knowledge far more than
under Ignorance, excites the wildness, barbarism, and
fierceness of men's minds."
The day for Credit-Right and its Corollaries instead of
Credit Restraint has arrived I
This is the chance for National Finance 1
THE CHANCELLOR'S RED LIGHT/
WORDS that fall officially from the Chancellor of the
Exchequer of the day are fateful. How startling
therefore are these :
" Capital must be conserved for public and for
business needs ; speculation must be discouraged and a
better response must be given than has hitherto been
made to the new Treasury issues and the Treasury Bills,
but particularly to the new Treasury issues. The Bank
reserve is lower and the currency note issue is higher
than any of us would wish to see. To-morrow's returns
will show Ways and Means advances largely increased
in consequence of the payment of the June dividend.
"That is all right, if it is a purely temporary
phenomenon. The whole question is, will it be temporary ?
If it is more than temporary, it is a danger. There is no
room for speculation ; there is no room for rashness.
Money is dear. Is it going to be dearer ? The remedy
is in the hands of the possessors of money. If they will
conserve it, if they will follow a cautious policy, if they
will not inflate credit or over-lend for trade, if they will
encourage investors and themselves to meet the public
need, then we may avert the peril, and I hope we shall."
Will those words bear examination ?
" Capital must be conserved for pubUc and business
needs."
What is meant by " Capital " ? Is it Instruments of
56
* BROADSHEETS " ON NATIONAL FINANCE 57
Pioduction, or Invested Funds, or Funds awaiting Investment,
or Funds accumulating for Investment ?
How can Instruments of Production be conserved for
public and business needs if prices are so high, materials so
scarce, the strain of taxation so tense that ordinary repairs
and renewals for maintenance cannot be carried out?
How can they be conserved if costs of production are
so heavy that works are being closed down to rust and
rot?
How can Invested Funds be conserved for public and
business needs if public and business charges against them
are frittering them away in falling market values ?
How can Funds awaiting Investment be conserved for
business needs if the capitalization of new enterprises is
rendered so inordinately high by the rate of public and business
charges that the figures required to yield the necessary return
are, in the first place, too fantastic for realization, and in
the next place, should they be realizable, are threatened
with confiscatory taxation ?
How can Funds awaiting investment be conserved for
public needs when all such Funds previously invested prove
that funds so employed have not only not been conserved,
but have involved heavy capital losses ?
How can Funds accumulating for Investment be con-
served for public and business needs if they cannot accmnu-
late in view of the fact that an amount of profit of to-day
of less purchasing power than a pre-war profit of half its
amount is regarded as including an excess profit of which the
Government may confiscate 60 per cent. ?
If none of these meanings can be attached to the word
Capital the expression used by the Chancellor is meaningless.
" Speculation must be discouraged."
How much of the business done since the Armistice,
outside the laudable attempts to restore instruments of
production appropriate to peace, has been anything btU
58 "BROADSHEETS" ON NATIONAL FINANCE
speculation for profits from the ever-rising prices which
are reciprocal to an ever-falling money standard ?
" The Bank reserve is lower and the currency note issue
is higher than any of us would wish to see."
Is not this the direct result of the financial policy of
the Treasury, which controls the currency note issue, and
gambles upon currency notes being real money when they
are even less real money than the Bank Reserve is a real
Reserve ?
" To-morrow's return will show Ways and Means
advances largely increased in consequence of the payment
of the June dividend. That is all right if it is a purely tem-
porary phenomenon. The whole question is, Will it be
temporary ? If it is more than temporary it is a danger."
Who but the Treasury as the responsible Paymaster
of the country can draw upon Ways and Means ?
Is not " The June Dividend " merely incidental to a
general financial policy, of which there will necessarily be
other incidents ? Is not the danger really the fact that
increasing expenditure is outstripping decreasing income,
because the national tax-spending capacity is exceeding
the national tax-paying capacity owing to a financial policy
based (1) on an unsound monetary standard which increases
the cost of government and everything else and which, when
the price peak is reached, brings business down with a run ;
and (2) on expensive methods of palpable State Socialism
founded on principles of Nationalization which the Govern-
ment publicly condemns ?
" There is no room for speculation ; there is no room for
rashness."
But the elusive money standard policy of the Treasury
is an actual, and is by far the most effectual, cause of both
speculation and rashness.
" Money is dear. Is it going to be dearer ? The remedy
is in the hands of the possessors of money."
"BROADSHEETS" ON NATIONAL HNANCE 59
The possessors of money 1 Why, of what is nowadays
called money, the chief possessor is the Government itself I
The purchasing power of credit is Money to-day, and the
Government possesses the purchasing power of the general
Credit of the people 1 The remissness of the Treasury lies
in the fact that it does not recognize this position and posses-
sion, although it evidences a misconception of the idea by
printing an excess of paper money.
Never before did a Chancellor in set terms acknowledge
absolute control of the Government and the country by
the financial community. At a time and in a country
when and where it is well known to every one that, without
its monetary element, trade is paralysed, the Chancellor
says : *' Money is dear. Is it going to be dearer ? The
remedy is in the hands of the possessors of money."
It is known that the financial community alone has the
power under present financial regulations to transfer credits ;
and they, it is admitted, have thus the power to make
money cheap or dear, i.e., to make or break the power to
trade.
If that is true, ought not the regulations to be changed ?
It is true, but true to an extent not great enough to remedy
the evils of the present situation. That is, the financial
community has the power to make trade bad enough for
the forlorn hope of a way out through wreckage, but not
to make it good enough for a sure way out through prosperity.
Yet what is more pertinently true is that the Govern-
ment has the power to widen adequately the scope of the
system of transferring credits for productive purposes;
and that the Treasury as the financial instrument and mouth-
piece of the Government is condemning itself by its failure
to take action when it says " The remedy is in the hands
of the possessors of money."
But this amazing thing follows :
** If they will conserve it, if they will follow a cautious
60 "BROADSHEETS" ON NATIONAL FINANCE
policy ; if they will not inflate credit or over-lend for trade,
if they will encourage investors and themselves to meet
the public need, then we may avert the peril, and I hope
we shall."
Even though the encouragement of business is forgotten
within a single paragraph, one might imagine that the public
need included not only the balancing of the Budget and the
reduction of pubUc debt, but also means to meet the heavy
cost of living, in addition to the charges for accommodation
which the financial community are able to make for providing
the means whereby the economic activities essential to
liquidating these obligations may be carried on.
One might imagine, too, that the peril lay in handing
over to these possessors of so-called money, the body and
soul of the bulk of the nation, to be subjected to the calling
in of loans, the inquisition, regulation and limitation of their
trade, and the diversion of funds from trade to Government
securities, without recourse except to Carey Street from
these arbiters of public fate ! Yet this peril the Chancellor
actually invites 1
The detached, impersonal way in which the Chancellor
is ready to bind the nation hand and foot to be disposed
of by a comparatively few big financiers is incomprehensible.
Only a statesman of the most callous type (which no
one would accuse Mr. Chamberlain of being) could be con-
sciously guilty of so grave a breach of the trust reposed in
him by the People.
Perhaps the signalman unduly controlled by circum-
stance is showing a red light in the hope that the nation may
see and understand for itself and act accordingly.
TRAGIC FINANCE/
IS THE BANK RATE 7% OR 24%?
IF a yard were reduced to the equivalent of 9 inches whilst
still being called a yard, and if, nevertheless, the price
of a yard remained the same, that price, although nominally
the same, would actually be four times greater.
In essence the Bank Rate is the price of money, and
becomes deceptive when the money standard has been
depreciated.
Whatever the cause of our so-called 7 per cent. Bank
Rate ; whether it is to induce foreign financiers to retain
here funds payable in gold (on foreign-held Treasury and
other Sterling Bills) which cannot be so met ; or to divert
funds from trading channels because the *' float '* required
in Treasury finance is now so colossal that Trade must be
sacrificed ; or that those who control the '* corner " in finan-
cial machinery, and are able to delude the Treasury, may use
the Bank Rate as a means of squeezing out holders of securities,
properties and businesses required for rounding up big
national and international projects to be equally controlled ;
and also incidentally to bring recalcitrant labour to heel ;
whatever it may be, that cause should be pubHcly defined.
If the nation generally be regarded as the public, secrecy
is " not in the public interest."
The Bank Rate cannot do any of these things without
accomplishing also more or less of each of the others ; nor
can it attract gold to this country as a high Bank Rate is
61
62 "BROADSHEETS" ON NATIONAL FINANCE
supposed to do when gold fetches no more than would buy
the same number of dollars as the gold itself would buy in
the States, where gold is at a carefully adjusted premium.
Under a sound monetary standard a 7 per cent. Bank
Rate means no more than 8 per cent, interest to the Trader ;
though even that is a serious burden where much trading is
based on borrowing.
Now, however, we have a depreciated monetary standard
under which the same Bank Rate almost means Suppression
of Trade.
This standard, a fluctuating one, is gold at £5 Ss. Od.
per ounce instead of £3 175. 9d., showing our Legal Tender
to be depreciated by 32 per cent.
To the borrowing trader, manufacturer, etc., the cus-
tomary 1 per cent, above Bank Rate charged for loans
makes his interest 8 per cent.
But, in the gross trading efficiency of what he borrows,
this really means 8 per cent, for £100 less £32 ; i.e., £8 interest
for £68, which is not 8 per cent., but nearly 12 per cent.
If the further depreciation of our legal tender in pur-
chasing power due to prices raised by scarcity or shortage
of commodities and increased cost of living be taken into
account, the net trading efficiency of £100 is reduced to £34,
upon which £8 is nearly 24 per cent.
Next, consider the Trader who is an importer of goods
from a country where monetary exchange is against us, say
the United States. His so-called £100 will represent only
897 present dollars instead of 486 pre-war dollars ; and as
the present dollar is worth only 42 cents, compared with
the 100 cents of the pre-war dollar, his 397 dollars equal in
trading efficiency only 16,674 cents against 48,600 cents, or
roughly one-third I
Hence 8 per cent, on the nominal amount which this
British Trader borrows is 24 per cent, on the true amount I
Such considerations either did or did not affect the
** BROADSHEETS " ON NATIONAL FINANCE 68
decision which fixed the Bank Rate, every 1 per cent, of
which meant at least 8 per cent, to this Trader.
In either event, the following inferences may be drawn :
(1) The present Bank Rate should not be maintained
unless a compensatory expedient is immediately adopted,
an expedient in the form of a credit-right scheme which
will infuse Uquidity into fixed assets, render static funds
dynamic, in transfers from one security to another, without
injury to the original borrower ; and either minimize any
legitimate need for so high a Bank Rate or neutraUze its
evil effects.
(2) The new Finance Bill should not be forced upon
the country unless endorsed by a Committee of Commercial
and Industrial Safety, which should be appointed forthwith,
with plenary powers to investigate the general principles
and special operations of our Financial Policy of the War;
in resj>ect of which Committee, Financiers, Financier-Mer-
chants, Bankers and Treasury Officials should be excluded
from Membership.
STOP THE WAR BETWEEN FINANCE
AND INDUSTRY
IT MENACES THE STATE!
FINANCE is the invisible power, as Commerce and
Industry are the visible power, in the means whereby
the Nation lives its economic life.
There is a silent war ever being waged between them.
The Financial Community periodically manoeuvres to
make Credit, which is its chief instrument, scarce and dear
to the Commercial and Industrial Community. At different
times and places for various reasons Financial Policy to
this end becomes mere Financial Conspiracy.
The Commercial and Industrial Community requires
Credit to be abundant and cheap.
When Credit is made scarce and dear prices tend to
fall, but the means to buy fall lower, business failures mul-
tiply, industry stagnates, and unemployment spreads.
It is at such times that the Financial Community uses
its invisible credit power to acquire control of the fundamental
instruments of commerce and industry at forced-sale prices
and to that extent causes these contending Communities to
overlap.
The cash reserve principle in Banking by its effect on
expansion and contraction of Credit, causing corresponding
waves of prosperity and depression in trade, has thus been
so useful in directing both financial and industrial power
64
"BROADSHEETS" ON NATIONAL FINANCE 65
into the hands of Financiers that the wish that this move-
ment is a natural law is father to that thought in the most
patriotic and least international financial minds.
Nevertheless, the law is artificial, and those who under-
stand this enjoy the power to control the " output of the
genial sun or kindly rain " of trade.
This quoted phrase was used by our gifted Lord Chan-
cellor on Sunday, with another application, however.
This power makes the harvest a good one and wheat
plentiful to Finance, but it nevertheless makes bread dear
to Commerce and Industry.
A further point for the Lord Chancellor to note is that
the " Deliberate restriction of output by the worker, known
as ca' canny," however foolish it may be, is a natural con-
sequence (delayed until made possible by powerful Unions)
of the deliberate restriction of credit by the financial community
as supported by the financial policy of the country.
Credit is now being abnormally restricted against
general Commerce and Industry (as distinct from the sp>ecial
Commerce and Industry which the Financiers themselves
promote) by the following methods :
(1) An abnormally High Bank Rate for Paper Money
of abnormally low purchasing power.
(2) Deliberate contraction of Credit by the Banks in
concerted action.
(8) Confiscation by Taxation of the Credits accumulated
in keeping industry going.
These Causes will force " ca' canny " upon Commerce
and Industry even more completely than Trade Unions
can force it upon Labour.
Far-sighted Finance, through not being far-sighted
enough, will find that it has over-reached itself when, as
the alternative to something worse, its own section of Com-
merce and Industry alone must support the whole wage-
earning conmiunity working upon " ca' canny " principles
a
66 "BROADSHEETS" ON NATIONAL FINANCE
and Union rates of pay ; at a time moreover when the yield
from Industry required for service of debt, costs of govern-
ment and return upon investments is ten times greater than
ever before.
It seems futile to remind all concerned that these con-
ditions are mutually destructive and that therefore under
such a policy, the " something worse " must happen.
Referring to Clause No. 1 :
High Bank Rate never fulfils its legitimate function
when Legal Tender falls short of the long-established-
mint-par-of-gold standard. That is not only a fact,
but it is one of the few facts in finance which ought to
be a fact.
Referring to Clause No. 2 :
Deliberate contraction of Credit by the Banks in
concerted action is usurpation of the most powerful
influence in the government of the country by a small
section of the community operating against the remain-
der of the population ; it is equivalent to the aboUtion
of representative government in favoiu" of unauthorized
autocracy. What wonder that Trade Unions arrogate
to themselves autocratic powers I
Referring to Clause No. 3 :
Confiscation by taxation of the Credits accumulated
in keeping industry going, operating in conjunction
with Clauses Nos. 1 and 2, is dehberate support of the
fatal policy of an international financial community
which cares little for this country except as an area
to which certain departments of reorganized world-
industry are to be allotted.
On the heads of those responsible for these caitses
will lie the War of Industrial Independence which must
inevitably result.
The remedy with which to avert the catastrophe is
not wanted because the Financial Community are too bhnd
"BROADSHEETS" ON NATIONAL FINANCE 67
to see that it is necessary^ not merely for others, but also
for themselves.
Tliat remedy is : (1) The restoration of sound Legal
Tender by rapid methods, and
(2) The vesting of Credit-Right in Instruments of Pro-
duction for the promotion exclusively of further production
limited alone by the necessity for a very real commercial
and industrial equilibrium as distinct from a hypothetical
financial equilibrium.
''THE GERMAN GREAT BANKS AND
THEIR concentration:'
AS WE ARE ACCEPTING BOTH AT HOME AND
ABROAD THE UNDILUTED POLICY OF THE
INTERNATIONAL FINANCIERS IT IS UTTERLY
INCONSISTENT TO REPUDIATE HUGO STINNES !
(1) Because HUGO STINNES IS MERELY A NOMINEE
OF INTERNATIONAL FINANCE ;
(2) BECAUSE HE IS DOING THE WORK WHICH IS
REQUIRED OF HIM.
HIS sardonic exultation is born of almost assured success
of the policy he stands for. The " almost " measures
its folly !
The following facts speak for themselves. They are
extracted from a translation pubhshed by the United States
Government, in 1911, of
"THE GERMAN GREAT BANKS AND THEIR CON-
CENTRATION" in connexion with "THE ECONOMIC
DEVELOPMENT OF GERMANY," By Dr. J. RIESSER,
of the University of Berlin, a book which proves that the
power behind Hugo Stinnes controls the entire economic
situation of (Jermany, and world-capital estimated in terms
of money at £30,000,000,000 !
" Hugo Stinnes had some relations with the Dresdner
Bank, having participated with it in the reorganization
of the Saar-und Moselle Mining Company. He established
68
"BROADSHEETS" ON NATIONAL HNANCE 69
relations also with the A. Schaaffhausen'scher Bankvemn,
after the latter had founded a community of interest with
the Mittelrheinische Bank in Koblenz, of which Stinnes
was a board member. In 1901 Stinnes established relations
also with the Darmstadter Bank, when he became vice-
president of the board of the Deutsch-Luxemburgische
Berserks und Hutten-Aktien-Gesellschaft, which owes its
financial strength and high technical standing to the Darm-
stadter Bank. The concern combined both mining and
smelting operations after the acquisition in 1904 of the
Stinnes mines, Friedlicher Nachbar.
" On January 1st, 1905, a community of interest was
entered into between the Gelsenkirchener Bergwerks-
Aktiengesellschaft, the Aachener Huttenverein Rote Erde,
and the Thyssen concern Schalker Gruben und Huttenverein.
By this step a group of competing banks, viz. : the Dis-
conto-Gesellschaft, the Deutsche Bank, the Dresdner Bank,
and the A. Schaaffhausen'scher Bankverein, were brought
together in a joint undertaking. This event served also
to enhance the power of Hugo Stinnes and August Thyssen,
who became members of the ' joint committee ' of this
community of interests.
" This combination seems to have brought about some
sort of equilibrium in the Rhenish-Westphalian industrial
territory, and simplified certain complex relationships in
the banking and industrial field. On the other hand, there
are already evident the beginnings of new conflicts in
another field.
"As we saw, the Lorraine-Luxemburg iron industry
has in recent times been coming to the front more and more,
and is beginning to overshadow even the Rhenish-West-
phalian industry. One reason of this development is the
far lower cost at which it can produce pig iron as compared
with the Rhenish-Westphalian district. Another reason
is that, owing to the electrical process recently introduced
70 "BROADSHEETS" ON NATIONAL FINANCE
in the manufacture of steel, the value of Luxemburg-Lorraine
ores, which formerly were hard to work, because they were
rich in phosphorus, has been greatly enhanced. These can
be utilized most cheaply and advantageously by the works
located close to the ore beds. The quantity of such ore is
estimated at about 2,000,000,000 tons.
" Realizing that a serious movement of the German
pig iron industry toward the south-west has set in, the lead-
ing captains of industry and the leading banks alike have
felt obliged to increase their influence in the Lorraine-
Luxemburg region.
" In this territory the position of the firm, Spaeter &
Co. in Koblenz, is very powerful. It is the founder of the
Rombacher Huttenwerke, which have brought up the Mosel-
huttenwerke and dominate the blast furnaces in Rodingen,
RumeUngen, and the Eisenhuttenaktienverein Dudelingen.
In this district Thyssen has thus far gained a foothold prac-
tically only through his interest in the Huttenverein Sambre
at Moselle, while Stinnes's hold in this territory is only
through his membership in the Supervisory board of what
is now a very important company^ — the Deutsch-Luxem-
burgische Bergwerks und Hutten-Aktiengesellschaft and
his rather unimportant connexion with Spaeter & Co. As
recently as April, 1909, a step was taken which is certain
to affect deeply the relations of the different industrial
groups and their relative positions. In all likelihood it
will also exert a powerful influence on the relations of the
different bank groups which are dependent on these industrial
groupings, and on the general movement toward concentra-
tion. An enormous increase was made in the capitalization
of the Gelsenkirchener Bergwerks Gesellschaft. Its capital
stock was increased by 26,000,000 marks to a nominal
amount of 156,000,000 marks, and its bonded debt by
20,000,000 marks to 70,000,000 marks. The latter increase
was made in spite of the fact that there was still available
"BROADSHEETS" ON NATIONAL FINANCE 71
an unissued amount of 9,825,000 marks in 4 per cent,
bonds authoriied in 1906.
" This move attracted attention not only by the size of the
capital increase but also because it teas jnade at a time of money
iiringency and unfavourable market conditions. The company
justified this step on the ground that the additional resources
were indispensable for the erection of new blast furnaces
and steel works in Esch and in Deutsch-Oth. It was also
given out officially that the measure was necessary to ensure
an ' adequate position ' for the company in case the Steel
Works* Union, which terminates June 80th, 1912, were
not renewed. Doubtless this had reference to an increase
of its quota in the syndicate. The Gelsenkirchener Berg-
werksgesellschaft had originally been a producer of coal
and coke only. After it had entered into a community
of interest with the Rote Erde and the Schalke Works it
became also a producer of pig iron, steel, semi-manufactures
of iron and steel, beams and rails, but it nevertheless con-
tinued to hold the largest production quota in the coal
syndicate. Through its action of April, 1909, however,
it entirely shifted its centre of gravity away from the pro-
duction of coal to that of iron and steel.
" This step was in keeping with the movement of the iron
industry to the south-west. The new resources were to be
expended for the purpose of operating its steel and rolling
mills in combination with its blast furnaces, where conditions
made possible the cheapest cost of production, i.e., in the
heart of the Lorraine-Luxemburg Minette district, where
it owned extensive ore beds.
" Through this action, however, the Gelsenkirchener
Bergwerksgesellschaft became a direct competitor of August
Thyssen, who had been a member of its board. He at once
accepted the logical consequence of the situation and resigned
from the board. Earlier he had withdrawn also from the
board of the Phoenix. The Thyssen concern Deutscher
72 "BROADSHEETS" ON NATIONAL FINANCE
K^aiser owns very important ore rights in the Lorraine-
Luxemburg district, and he himself, as was shown above,
is interested in the Saar-und Moselbergwerksgesellschaft
in K^arhngen. Moreover, early in 1909 he invested several
million marks in land in this section and acquired the patent
rights to produce electro-steel in all his works.
" In the near future, the struggle for supremacy is hkely
to be fought out in the Lorraine-Luxemburg district. The
trial of strength between the leading interests will come as
soon as negotiations begin with a view to renewing the
Steel Works' Union at the expiration of the present agree-
ment.
" The progress of the conflict and its outcome, and
the industrial concentration that is likely to precede or
follow it, will undoubtedly be influenced by the banks and
groups of banks that stand back of the captains of industry
and their enterprises.
"So far as we can foresee, the important part will
be taken by those banks which now possess, or by that
time will have attained, a controlling influence over the
industrial concerns which dominate the Lorraine-Luxem-
burg district. It will be of the utmost interest to watch
further developments. These will reveal many different
combinations and changes in industrial and banking con-
centration and new group ahgnments in both fields."
HUGO STINNES AND AUGUST THYSSEN :
" While Stinnes is closely aUied with Thyssen " (as
is evident from pages 741/2 of the same publication) " and
owns jointly with him the Mulheimer and the Sambre et
Moselle mining companies, he owns also in his own right
the coal mines Mathias Stinnes, Victoria Mathias, Graf
Beust, Carolus Magnus, Friedrich, and Ernestine. He owned
also the FriedUcher Nachbarmine (transferred in 1904
to the Deutsch-Luxemburgische Bergwerks-und-Huttenak-
"BROADSHEETS" ON NATIONAL FINANCE 78
tiengesellschaft). In the southern part of the Ruhr district
he is almost in sole control ; in the rest of this territory
he shares control with Thyssen. Stinnes likewise joined
the Supervisory board of the Gelsenkirchener Bergwerks-
gesellschaft. In addition he is on the board of the Nord-
stem and of the Mittelrheinische Bank in Koblenz and
Duisburg. The latter is closely related to Spaeter & Co.
in Koblenz.
" The supremacy of Thyssen and Stinnes in the Ruhr
district is disputed in the main only by the Haniel family
and by Karl Funke of Essen."
THE BANKS AND MINING :
" More and more it is becoming clear, in all essentials,
that the fate of the mining and metallurgical industries as a
whole wiU be decided not in Upf>er Silesia or on the Saar,
but in the two districts in which primarily the great banks
are contending for financial control — the Rhenish-West-
phalian and the Lorraine-Luxemburg districts. Between
the latter and the former there are close connexions. Largely
through the help of the banks the Lorraine-Luxemburg
district has recently attained a position of more dominating
importance, its extensive ownership of mines in the Ruhr
section giving it large influence also in the Rhenish- West-
phalian territory."
THE RUSSIA THAT IS RISING
FROM A
PAPER MONEY DEBAcLE
BEFORE Lenin, Legal Tender Currency in Russia became
so depreciated that prices quoted in it rose to dizzy
heights ; so high that buyers could not buy, and sellers
could not sell. Industry collapsed. Business ceased.
Millions of men, women and children became destitute ;
boots, clothes and food became priceless.
The nation was threatened with nakedness and starva-
tion ; individuals sank in the streets exhausted, and died
where they feU.
That opened the way for a Dictator to save a people
distraught.
Along that pathway Lenin came !
He called for volunteers to save Russia.
He bought with money from his printing press food
and equipment for his soldiers.
He discredited other moneys. His money alone he
made Legal Tender ; whereby he made it comparatively
scarce and valuable.
He paid his soldiers with this new money, and fed
and clothed them.
The Naked and the Hungry flocked to his Army.
The rest of the people found it profitable, safe and
patriotic to work unceasingly on army service and supphes.
And NOW ?
74
♦* BROADSHEETS " ON NATIONAL FINANCE 75
100,000,000 PEOPLE ARE BEING WROUGHT INTO
A FIGHTING MACHINE I
100,000,000 PEOPLE ARE BEING ORGANIZED:
NOT FOR INDUSTRY— NOT FOR COMMERCE— NOT
FOR PEACE— NOT FOR ANY OF THESE THINGS—
BUT FOR FIGHTING ALONE !
Necessity compels it 1
The same kind of economic necessity, likewise caused
by an inversion of sound monetary principles, drove the
Great Napoleon, who was capable of so much high-minded-
ness and generosity, to " brave alike the sun of Egypt and
the snows of Russia ; boimd by no treaties ; regardless
alike of private honour and pubhc faith ; prodigal at once
of the blood of his people and the property of his enemies ;
indifferent equally to the execrations of other nations and
the exhaustion of his own."
THEREFORE, ALSO, LENIN, COULD HE STOP
FIGHTING, DARE NOT 1
No industries in Russia can now be maintained EXCEPT
TO SUPPORT AN ARMY ; and the Army must be VAST
ENOUGH TO REQUIRE THE SERVICES OF THE
WHOLE ADULT CIVILIAN POPULATION I
That Army may become mighty enough to terrorize
all Europe, Asia, and Northern Africa. It must ever be
on active service — capturing, controUing, destroying ! It
can rest only where and while its new money, after super-
seding repudiated moneys, remains effective 1 Its end can
come only by miUtary exhaustion, with PERHAPS a govern-
ment forced upon Russia by the rest of the world.
BUT THE FEW TROOPS THAT NAPOLEON
BUONAPARTE COULD MUSTER NEARLY SUBJU-
GATED EUROPE 1
Those troops were fighters in the Russian sense of
to-day. They fought to live, and could not hve if they
did not fight.
76 "BROADSHEETS" ON NATIONAL FINANCE
WHAT, THEN, MAY NOT RUSSIA DO?
Before it collapses it may wreck the Eastern Hemi-
sphere I Not Bolshevism, but this necessity will be its
motive force in spreading the false Lenin Doctrines 1
Peace for France in Napoleon's Day meant Industrial
Paralysis and Starvation.
PEACE FOR RUSSIA IN LENIN'S DAY MEANS
THE SAME! WHY? BECAUSE THE TRADING
PROPOSALS OF A HANDFUL OF FINANCIERS ARE
MERE MOCKERY OF DESPERATE MILLIONS OF
HER PEOPLE— UNLESS FREEDOM IN FINANCE IS
GRANTED ALSO.
Russia will have to be fought in another world-war
UNLESS BY EXAMPLE IT IS SHOWN THE BETTER
WAY!
THE BRITISH EMPIRE COULD, BY EXAMPLE,
SHOW RUSSIA THIS BETTER WAY.
If the British Government would endow British I*ro-
ductive Properties with a right to practically free Credit,
based on the properties to half their gold value, that Credit
to be used wholly to create FURTHER Productive Pro-
perties or to relieve existing Productive Properties of First
CHARGES, they would SHOW RUSSIA HOW TO PRO-
DUCE PEACEFULLY ABUNDANCE OF COMMODITIES
AND CREDIT WITH SCARCITY OF UNEMPLOYMENT,
INSTEAD OF SCARCITY OF COMMODITIES AND
CREDIT WITH ABUNDANCE OF UNEMPLOYMENT!
The British Empire has the power thus to endow
productive properties as a consequence of its Cheque and
Banking System.
So soon as Russia saw the miracle of prosperity that
could thus be wrought, its Army would be turned upon
itself to teach the Russian people how to use cheques, to
establish the necessary Banking, to utiUze such Credit, and
to live contentedly and peacefully at home.
"BROADSHEETS" ON NATIONAL FINANCE TT
That Army would not then bemused far and wide, as it
otherwise must be, treaties or no treaties, to spread Bol-
shevism with Fire and Sword 1
STATESMEN of all Parties and of No Party I— FINAN-
CIERS who control existing methods of creating and dis-
tributing Credit ! Whether it please you or not, circum-
stances have made that simple principle of credit essential
to the survival of modem civilization. " Be just and fear
not." Be otherwise and tremble, not merely for the Empire
at large, but for your own hearthstone I
FORSAKEN BY AMERICA
MENACED BY 200,000,000 RUSSIANS DEPENDENT
ON GERMANY
WARRED ON BY OUR GOVERNMENT
HAVE WE LOST THE GREAT WAR?
IS THE NATION BEING DRIVEN " DOWN AND OUT " ?
IS THE BRITISH EMPIRE DOOMED?
AMERICA — not the American People, but merely the
mentors of their Government Executives — forsook
us when she forced the Armistice upon us.
Admiral Sims truthfully declared that though America
entered the war in April, 1917, she was of little help to the
AlUes until ten months later.
The real help came with the thoroughgoing financial
blockade contained in THE EXECUTIVE ORDER OF
THE PRESIDENT, DATED JANUARY 26, 1918, which
began to operate early in February ; which startled Ger-
many into the desperate attacks of March " when the German
armies were sweeping in a victorious tide over France,
threatening at once Amiens and Paris " ; and which pro-
duced the internal collapse of the enemy, beginning with
Bulgaria in September, and ending with Germany in Novem-
ber I
That Blockade, if continued, would have enabled the
AUies to march victoriously upon Berlin with little or no
further loss of life, hailed as saviours of a starving people
78
"BROADSHEETS" ON NATIONAL FINANCE 79
— but America substituted the Armistice 1 Succeeding
events compel the inference that THE FINANCIAL BLOCK-
ADE WAS APPLIED NOT TO HELP THE ALLIES
BUT TO PREVENT SUCH A VICTORY BY GERMANY
AS WOULD HAVE PLACED THE AMERICAN SECTION
OF INTERNATIONAL FINANCE UNDER THE GERMAN
SECTION.
Thus did America forsake us 1
200,000,000 RUSSIANS MENACE US !
// peace with Poland he signed by the Bolshevik Govern-
ment this will be done in order that Russia may attack
India, and elsewhere, with overwhelming armies. War
and Conquest are the only Industries open to Russia. As
the Assignats caused the failure of the French Revolution
(although no revolution is practicable without Assignats
or their like) and prepared the situation for a Napoleon
who could employ the people by making war ; so the paper
money which PROVOKED the Russian Revolution also
DESTROYED it, and prepared the situation for a Lenin,
who, with tens of millions of soldiers, compared with Napoleon's
hundreds of thousands, may destroy modem civilization
more completely than the Barbarians destroyed that of
the Romans.
// pecue with Poland be not signed the Russians may
overrun Europe.
We could show Lenin how to save Russia and himself
without war and conquest ; but the same people that check-
mated our Financial Blockade in 1916 by means of our own
Treasury Bills in the hands of so-called Neutrals, and that
stopped the American Financial Blockade too soon, again stop
the way. Hence, if peace be not signed with Poland, we,
instead of being in Germany directing resistance to Russia,
or instead of having shown Russia the needlessness of her
warlike enterprise, shall be forced to seek the aid of Germany,
as Mr. Churchill has already done. In other words, we
80 "BROADSHEETS" ON NATIONAL FINANCE
have been made DEPENDENT ON GERMANY'S BECOM-
ING ONCE AGAIN powerful, rich, resourceful, defiant ;
not poor, disarmed, defenceless I Whilst
UPON US EVEN OUR OWN GOVERNMENT MAKES
WAR!
It does so when it impoverishes the people by means
of restricted credit, amazing taxation, high cost of money
of small purchasing power, etc. It does so by making it
almost a crime for a British subject to make profits. The
Government forgets and the Smillies never knew that WAR
UPON PROFITS IS A DESTRUCTIVE WAR UPON
THE NATION ITSELF, BECAUSE PROFITS IN PRIN-
CIPLE ARE NO MORE THAN WAGES, AND WAGES
ARE THE NATION'S MEANS OF LIVELIHOOD.
The impoverishment of the British subject will neither
impoverish nor impede the section of International Financiers
which checkmated our Financial Blockade and stopped
the American Financial Blockade too soon I Rather will
it make these men more viciously powerful, more completely
dominant over orderly peoples and pliable governments
than ever. THEIR international meat is OUR national
poison. So much so that soon it may be said of the Heart
of the British Empire, as David Lloyd George said of the
Earth :
" This torn and bleeding earth is calling to-day for the
help of the America of Abraham Lincoln."
Those are the words of our great Premier. But are they
strictly true ? Was not the America of Abraham Lincoln
"torn and bleeding," too? Was it not the POLICY of
Abraham Lincoln that made it whole ?
Is it not the POLICY — not the country nor yet the
man — that the British Empire needs to-day ?
We have THE MAN in DAVID LLOYD GEORGE
HIMSELF ! But not the Policy.
That Policy consisted of UNITY AND EMANCIPATION.
"BROADSHEETS" ON NATIONAL FINANCE 81
The method of applyinf;^ it was bloody but successful.
THE UNITY OF THE BRITISH EMPIRE^REAL
UNITY— AND THE EMANCIPATION OF BRITISH
SLAVES may be achieved by a comparatively bloodless
method — a method which could regenerate Russia or any
other stricken country capable of civilized pursuits.
It is said by a few thousands of well-placed but short-
sighted and narrow-minded people, that the war has opened
out wonderful prospects for the British Empire. These
people ought no more to be listened to than the 600,000
Leninites who, whilst they predict the wonderful prospects
of Russia, rule and exploit without mercy 200,000,000 Russians.
Just as the wonderful prospects of the 200,000,000 Russians
consist of Industrial Slavery for the Civilians until military
exhaustion overtakes the TROOPS and the 600,000 Leninites
go down in a frenzy of savagery and revenge ; so the wonder-
ful prospects seen for the British Empire, pre-suppose Indus-
trial Slavery under intolerable conditions for the real wage-
earning workers, both EMPLOYERS AND EMPLOYED.
Those intolerable conditions are foreshadowed by the normal-
year service of debt of £865,000,000 (amongst other charges)
announced in a recent White Pap>er by the Chancellor of
the Exchequer.
These figures contemplate such a charge annually for
about 50 years. That means £18,250,000,000. To this,
however, must be added the effect of the reinvestment of
at least £100,000,000 of that annual charge each year for
producing an income of at least 5 p.c. ; these investment
funds not being needed for consumption purposes. But as £l
per annum invested at compound interest at the rate of 5
p.c. produces in 50 years £209, one hundred million pounds
per annum in 50 years would have to produce £20,900,000,000 :
80 that in 50 years the producers of the country are expected
to provide IN ADDITION TO CURRENT NEEDS AND
UNDER CONDITIONS WHICH MAKE PROFITS ALMOST
V
82 "BROADSHEETS" ON NATIONAL FINANCE
A CRIME the impossible total of £39,150,000,000 ; although
they must also provide the further £700,000,000 per amium
to be Budgeted for and the charge upon industry made by
every £l per annum of investment funds invested during,
say, only, the past century, for every £l of which industry
has had to create £2,610 ; most of it, moreover, for further
investment in INDUSTRIES, EITHER AT HOME OR
ABROAD, UNDULY LIMITED BY THE IDEAS, PRE-
JUDICES AND FAVOURITISMS OF REMARKABLY
FEW MEN.
Those who expect such impossibilities are inviting their
own downfall even more surely than the 600,000 Bolsheviki
are inviting theirs.
For remedying the evil it is as great a folly on our part
to make levies upon capital, confiscate war profits, add
profits to the criminal code, repudiate debt and impoverish
individuals by taxation, as it is on the part of Bolshevists
to try to reconstruct civili25ation on foundations of robbery
and murder.
A simple modification of the existing Capitalist System
in relation to redeemable credit is the true and only remedy :
Emancipate the British slaves by granting practically-
free Credit-right, guaranteed by the whole nation, to indi-
vidual producers, in respect of their productive property,
for the purposes of creating further productive properties
and relieving existing ones of burdensome charges ; do this
under conditions which will increase the demand for, and
the value of, wage-earners ; who, in due course, will thus
acquire the means to quahfy as producers for the same
Credit-right on their own account, in circumstances which
will remove their prejudice against machines as taking the
place of men and women in the multiplication of productive
power.
The vast sums in interest which Production (enormously
multiplied and varied) would thus be saved, would enable
i
"BROADSHEETS" ON NATIONAL FINANCE 18
all its obligations to be met willingly and prosperously ;
whilst freedom more glorious and lasting than Lincoln
gave to the black slave would reach the pallid slaves, both
employers and employed, in offices, factories, shops, works,
town dwellings, and countryside. Throughout the British
Empire the Bond of British Credit granted to every Pro-
ducer as a legal right, the Bond of All for the benefit of
Eiach, would weave a golden thread of Union more binding
and permanent than bonds of steel.
DAVID LLOYD GEORGE,
British Prime Minister at the gravest crisis in British history 1
The Mantle of Abraham Lincoln has fallen upon YOU !
By the example which it is in your power to promote,
by the imperial and material power which the exemplars
combined would rapidly acquire, you, and you alone of mortal
men to-day, can save " the torn and bleeding earth."
THE CRISIS!
"^ LITTLE CHILD SHALL LEAD THEM''
'T^HE Children's Newspaper, of August 7, 1920, says :
" A syndicate of British business men has acquired
80 per cent, of the maritime rights of the river Danube,
but the grown-up papers have not done more than
make this announcement."
Doubtless the disingenuous grown-up papers knew better
than to say more. For itself The Children's Newspaper
concludes that because a Scotsman and a few Associates in
International Finance have
" not only acquired ships and maritime rights, but
shipbuilding yards, coal mines, piers, wharves, ware-
houses, stations and barges, the barges alone repre-
senting £20,000,000 " :
that, therefore,
"GREAT BRITAIN controls the economic life of
Central Europe, GREAT BRITAIN has become the
master-builder of Central Europe's ruined civiliza-
tion, GREAT BRITAIN can assure the peace of the
worid ! "
But Great Britain is not yet merely a Scotsman's Syndi-
cate ! What does this mean ? Listen ! Whilst a paper
standard of value, a high Bank rate for depreciated money,
amazing taxation which either confiscates or prevents
(except for high finance) business profits, and an avowed
banking policy of credit contraction, combine to restrict
the resources of British Industry and foster unemployment,
84
\
"BROADSHEETS" ON NATIONAL FINANCE 85
a favoured Scotsman is able to raise untold millions in credit
for controlling the Danube — alive to the fact that
** the controllers of great rivers have in their hands a
mighty power '* ;
aware that *' what Central Europe required was work " ;
knowing " how to get raw materials into Central Europe ** ;
" how to provide the manufacturers of all those ruined
countries with capital ; how to get the populations of
those States back to the self-respect of self-supporting labour "
— for High Finance I
Observe I Credit is being diverted to establish manu-
facturing concerns elsewhere against the interests of our
peopU, whilst manufacturers here are being forced out of
business by restriction of credit, spending power, production
and employment, added to high costs of materials caused
by our adherence to legal tender of an inferior monetary
standard !
It is taking the name of Great Britain in vain to say
that Great Britain is doing this !
It is like saying that ten men shall have £1,000,000
between them, or an average of £100,000 per head, when one
man alone is given the £1,000,000 and the other nine are
made into paup>ers.
WTiat is the Truth ?
The Truth of such schemes is that International Finance
is against us as a People in the regeneration of " the torn
and bleeding earth."
It is a great thing to help, a human thing to profit by,
the " wreckage of the Danube," but International Finance
would do it by making wreckage of us.
That International Finance is against us has produced
our Crisis.
It causes Germans to flout the British Premier, Official
France to embarrass him, American Executives to chechnaU
him 1
86 "BROADSHEETS" ON NATIONAL FINANCE
Why ? Because he is wise enough to temper his keen-
ness to fight Soviet Russia— Soviet Russia struck a blow —
a dishonest one — at International Finance in repudiating
foreign debt : it mattered little that the power of Russia to
pay had already been broken by the pre-Lenin Revolution.
The International Financiers want Russia, first to
agree to pay, next, to be able to pay, and eventually to
pay I
They know that Soviet Russia can never pay, so they
are ready to sacrifice millions of lives, other than their
own, to crush Soviet Russia 1 The French International
Financiers, the German, the American, and — most potent
of all politically^ — the German- American International Finan-
ciers are all ready to crush Soviet Russia in the same way.
The British Premier, who knows that all debts should
be paid, who knows, too, that Soviet Russia can never pay,
must also know that it is not necessary to sacrifice millions
of lives to procure payment, because Soviet Russia will
ultimately destroy itself by economic exhaustion resulting
from monetary disease, and its Government will go down in
an upheaval of the Russian People, who will then, if helped,
be both willing and able to pay.
Soviet Russia must fight for Ufe, a great, inevitable,
but abortive fight.
In the beginning Germany may be neutral or otherwise.
Ultimately, Germany must be resuscitated into a great
fighting Power that it may not be submerged.
Soviet Russia thus, either directly or indirectly, will
tear up the Treaty of Versailles and dig the grave of France,
Belgium, and Holland.
The European Continent will be dominated partly by
Germany and partly by Russia, as the opposing forces of
organized High Finance on the one hand and Desperate
Economic Chaos on the other, until a collapsed Russia gives
way to Germany alone or appeals to whom ?
"BROADSHEETS" ON NATIONAL HNANCE 87
WILL THE BRITISH PREMIER ELECT TaDAY
TO STAND ALONE ?— setting free financially and thus
uniting imperially a great Empire solidly behind him ?
Will the British Empire at long last be permitted,
by means of credit-right for productive purposes, to develop,
unfettered and unrestrained by the specialized schemes of
International Finance ?
If Germany will not save Poland, Germany will save
herself. She will not join Soviet Russia whilst German
and German-American International Financiers control her.
Should they lose control, Germany will join Russia and
extinguish both them and Poland too in a colossal Soviet
State which will ultimately, whatever damage it may do
meanwhile, produce its own economic undoing, as surely
as Soviet Russia left alone must do.
Meanwhile, thrown over by France, may Great Britain
accept the situation and be no more an overwhelming mili-
tary power, but instead be warned by the example of once-
powerful but now helpless Holland 1 May she become by
far the greatest Sea and Air Power 1 May every man in
her fighting services be rendered a host in himself as director
of a fighting machine or machinery I May she so defend her
frontiers that the British Empire shall become impregnable
from without ; whilst within, upon her 12,000,000 square
miles of territory, may there develop, under a sound monetary
standard and Credit-right, a thriving, peaceful, populous,
united, and unconquerable People 1
OUR LEGAL TENDER LAPSE
is the primary cause of our National Unresty
and persistence in it prevents the remedy for
the secondary cause — the cost of the War and
its aftermath
JOHN Locke (a.d. 1632-1704), financial expert and philo-
sopher, author of the essay " On the Human Under-
standing," was one of the original Directors of the
Bank of England. The Bank of England still survives,
and John Locke's philosophical writings are immortal I
John Law (a.d. 1671-1729), financial expert and superficial
thinker, devised Currency Notes, which ruined nations in
his time, and now threaten to ruin more.
Of these two men our Treasury prefers John Law.
It is difficult to conceive why, unless one assumes that it
is out of (surely not more than) verbal compliment to Bonar
Law.
John Law said in effect that Sound Legal Tender may
consist of Paper, based on Government Paper or chunks
of indivisible property. John Locke proved that it may not.
He proved that sound Legal Tender cannot go outside
itself for value, but must itself embody both standard
value and security therefor.
Because an abuse of this principle may pass muster
in a comparatively small way, or in a larger way if the steps
are rapidly retraced, our Treasury is likely to place us
88
" BROADSHEETS •* ON NATIONAL FINANCE 80
amongst the human debris attributable to Law. Some
of the consequences are besetting us now.
Unemployment of ex-soldiers, dockers, and others ;
ever-rising cost of living ; adverse rates of exchange ;
decreasing supplies ; either higher prices or subsidies for
bread, coal, shipping, and travel ; the rebellious spirit and
social unrest amongst millions of the people : these are
effects of great prices having to be paid for small values
received, because the prices are measured in Legal Tender
based on unsuitable Securities instead of Gold.
Whatever is Legal Tender in a nation is the national
standard of value. All standards of value are elusive things
at best.
But the fundamental standard of value, especially of
Legal Tenders themselves, should be as little elusive as
possible.
Securities and most Commodities fail because they are
relatively too variable in nature and deficient in necessary
qualities, involving that constant uncertainty which pro-
motes chaos in trading.
€k>ld rose to the top in the efforts of ages to find a stan-
dard having the necessary qualities whilst steady enough
to stabilize trading relations and aims. Hence is the truth
derived that
Legal Tender not based on gold, or to the extent that
it is not based on gold, lacks the qualities which produce
stability in the economic condition of a country and possesses
those qualities which lead to economic chaos.
The Treasury objects to reversion to the gold standard
in a way which admits that the effects that this reversion
would produce would include a substantial reduction in the
prices of commodities in general.
The objection is that the National Debt must be repaid
whilst prices are high, i.e., whilst the purchasing power of
money is low, in order that the Debt may not be redeemed
90 "BROADSHEETS" ON NATIONAL FINANCE
with funds of greater value than those in which it was
incurred {vide Mr. Stanley Baldwin in the House of Commons).
Even if all should go well with the impossible Treasury
Scheme, it would take fifty years to redeem the Debt.
If all should go well with the scheme of the Treasury for
reversion to the gold standard that would take fifty years
too.
When Alexander Hamilton (a.d. 1757-1804), for George
Washington, in the day of the paper money called " Shin
Plasters," found it prudent to make good the Government
obligations and to pay interest on arrears, he paid at the rate
of the gold value (not the paper-money or nominal value)
of the currency when and in which the obligations had been
incurred. On National Finance this had the effect of a
Capital Levy. But he protected the Creditors from ultimate
loss. He devised numerous alternative methods of payment
from which the Creditor might make his whole choice of one,
or part choice of several, with the effect that the development
of the United States was promoted by a great and new
diffusion of interests. This development was assured because
the interests made it both practicable and tempting to all
who wished to regain their nominal loss on the Debt and to
make much more.
This method of redeeming National Debt below par
without ultimate loss to creditors might have been available
to us by arrangement with the various Governments within
the British Empire, because the British Empire is not
relatively more developed now than the United States in
Hamilton's time ; but the method is denied to us through
our Treasury having prevented disclosure of the true price
of gold in a constantly depreciating Legal Tender paper
currency, in an utterly futile war-time effort to disguise
depreciation.
In our case the Debt, to be paid at all (as wisely and
honourably it must), must be paid with funds of greater
"BROADSHEETS" ON NATIONAL FINANCE 91
value than those in which it was borrowed. Tliat is the
consequence, mainly, of the monetary policy adopted through-
out the war, when no artifice to avoid depreciation of the
monetary standard was resorted to, and nearly every artifice
to produce depreciation was adopted.
The aUemative to repayment in funds of greater value
would make the country impossible to live in.
That alternative implies the fostering of Low Purchasing
Power in money (i.e., high prices), as a deliberate depreciated-
legal-tender pohcy. But such a policy must create an
insatiable demand for more and more of the money that is
of so little value for purposes of livelihood. The more of
such money that is claimed and exacted, the lower its
purchasing power must become : until business men despair,
and wage-earners by the million grow frantic, in fruitless
efforts to obtain enough in revenue and wages to meet
legitimate needs.
It should be needless to say that such a policy is an
incitement to revolution.
Revolution can never mean more in this country than
that large sections of the community, driven desi)erate by
misapprehension of their needs by conventional institutions,
accept the offices of revolutionary fanatics to tear the
seemingly insensate institutions down.
That type of revolution is preceded by internecine strife
amongst the people generally ; in which employers fight for
enough funds to maintain industry and wage-earners fight
to Uve. The spirit of the coming struggle is shown when one
side invites the other to " do its damnedest."
ADVERSE EXCHANGES— In the war-time efforts to
disguise the depreciation by ourselves of our Legal Tender in
our monetary policy. Sterling Bills and Cables of Exchange
were said to fall in value with the rise in the adverse balance
of trade, and vice versa.
That this is not the true cause was proved when countries
92 " BROADSHEETS " ON NATIONAL FINANCE
which were debarred by the war from receiving supplies from
America nevertheless had an adverse rate of exchange in
Dollars.
Further proof that this is not the true cause is being
furnished to-day, when the balance of trade is improving
between this country and the United States, but the rate of
exchange shows no improvement.
To-day the rate is clearly being affected not by the
balance of trade but by the amount of credit permitted to
be available by the Federal Reserve Board. And it is as
easy to decree the rate of paper-controlled exchange as to
limit the credit either for exchange purposes or general
purposes. Their defenders justify them by claiming that
Bills and Cables are a commodity which, like all commodities,
rise in price when they are scarce and fall in price when they
are abundant.
Even if this were true, it would imply further that they
are subject to that rigging of the market which at times
besets all commodities, and which in this case would be easier
than in any other, owing to the effectiveness of the control
of the market. But these Bills and Cables are not com-
modities. They run counter to commodities.
If all the things which may be bought and sold in
international trade be given the generic name Commodities,
all the real commodities, gold, wheat, oil, cotton and so
forth, might be enumerated as different species of this
genus. When all had been classified, still another species,
countering all the others, would be required, to round off
the genus, in the form of these Bills and Cables. But none
of the other species would have the same relation to all the
rest that this one would have.
The truth is that such a counter-species consists merely
of symbols of the other species. To treat its constituents as
commodities in a sale would be to sell the same commodities
twice in once, which cannot be done ; a maker cannot
"BROADSHEETS" ON NATIONAL FINANCE 98
possibly obtain £dOO for £100 of his goods by selling the
goods for £100, the invoice for another £100 and the Bill of
Exchange for a third £100. Not being commodities Bills of
Exchange do not respond to the laws of commodities. But
being claims to a specific commodity, viz.. Legal Tender,
the particular Legal Tender to which they have reference
must respond to price according to quality, which is a rule
of commodities ; and the Legal Tender always does thus
respond : in an adverse rate of exchange when its quality
is bad, and a favourable rate when its quality is good.
If the Legal Tender money is not gold money, but paper
money not fully covered by gold, the claims to it will not
fetch gold par, but as much less than gold par as the market
price of gold in that paper money shows this Legal Tender
to be below gold par, i.e., below the gold standard.
That accounts for the largest part of the difference in
the Exchange on New York whereby we get Dollars only
equivalent to £8 I7s. 9d. for every £5 lis. Od.
Until the Treasury rectifies our Legal Tender currency,
our Government has thus little or no control over our cost
of living.
Far greater power over it than our Government pK>ssesses
is left, until then, in the hands of the Federal Reserve Board
of the United States. Whether the serious financial crisis
which threatens the United States should develop or not,
this situation if allowed to continue must cost us dear.
The method of rapid reversion to the gold standard
is part of my scheme of credit-right. The method it is
futile to criticize, because it is the only method where a
method is imperative.
This scheme, which I have long advocated in anticipation
of this crisis, a scheme which would enable the conmiunity
to bear the weight of the National Debt and save from bank-
ruptcy many who would otherwise be ruined by a fall in
prices, cannot be applied without reversion to sound Legal
94 "BROADSHEETS" ON NATIONAL FINANCE
Tender currency with its consequences of desirably lower
prices and cost of living, because the credit, which is not
Legal Tender, and therefore need not be based on gold
itself, must nevertheless not only be estimated at and based
on gold values, but be used solely to create new, or unburden
old, properties productive of gold-values.
STRIKES, LOCK-OUTSy AND FINANCIAL
CONCENTRATION
THESE are the three jfreat Prizes of up-to-date Political
Economy.
The workers swear by Strikes. The Right to Strike
is the brightest Jewel in their Crown 1
The Magnum Opus of the Employer is the Lock-out !
The Idol of the Government is Financial Concentration^
With them, Financial Monop)oly talks.
But have these prizes any ultimate value ?
" Value ? " Laughter holds its shaking sides at the
mention of the word I
The most conflicting ideas of value prevail.
When the value of money is high, interest is high I
That is the state of things to-day.
When the value of money is low, prices are high 1 That
also is the state of things to-day.
High and Low I If Ministers and the Nation generally
are content to believe that all can be well with economic
policy, in face of such flat contradiction, then we are on the
verge of further proof that " those whom the gods wish to
destroy they fu^t make mad."
Judged by the quaUties which distinguish a true standard
of value,
FINANCIAL CONCENTRATION, supposed to have
high value — as in fact it has for a time to a few — has an
ultimate value of less or worse than nil.
95
96 "BROADSHEETS" ON NATIONAL FINANCE
(1) Because no such situation can endure ; its cul-
mination brings its downfall.
(2) Because the process of centralization of this world-
power, as the multitudes begin to comprehend it,
either by force of circumstances or by education,
must raise such armies against it everywhere as
will by repudiation and otherwise destroy the
Credit System of the universe and lay waste all
the populous centres of the civilized world.
(3) Because the munber of industries encouraged by
it are too few to employ wage-earners at com-
petitive wages, and this deliberate limitation of
industry in order to keep up a large market of
cheap labour reduces production, both in kind
and quantity, below the standard necessary to
maintain in comfort the growing populations of
the world.
(4) Because the concentration of financial power in
fewer and fewer hands as populations grow larger
and more enlightened jeopardizes the whole
capitaUstic structure, the right use of which is
essential to modem civilization, but the abuse of
which by checking the distribution of the right
to credit, although continually increasing the
credit total, has reached the breaking point.
(5) Because the power of finance to transfer industry
from one country to another is being caught up
rapidly by rapid diffusion of the principle of solidar-
ity and co-operation amongst unions of enhghtened
wage-earners throughout the world.
(6) Because finance being the only efficient machinery
by which general prosperity can be achieved, it
can no more be permanently cornered, by a few
magnates holding the rest of the world to ransom,
than can air and light
"BROADSHEETS" ON NATIONAL FINANCE VI
(7) Because no small number of men can for long hold
unchallenged the master-key to the fate of millions
upon millions of their fellow-men.
(8) Because the productiveness of the earth is inex-
haustible, but is being held in check by the policy
of financial concentration,
(0) Because the wider diffusion of financial freedom
is the Open Sesame to abundance of commodities
for all.
(10) Because the policy of concentration of fint^cial
power is absolutely restrictive and largely
destructive, whilst the diffusion of financial power
is only relatively restrictive and may be wholly
productive.
LOCK-OUTS have little National value—
(1) Because Lock-outs are merely strikes of Employers.
(2) Because a general Lock-out is equivalent to a general
strike and equally suicidal.
(8) Because the gain of holding up production by means
of Lock-outs is lost in subsequent mal-adjustments,
decreased effective demand and means to consume.
(4) Because the Nation suffers when Employers lock
out Workers and either transfer industry or abandon
it.
(5) Because Lock-outs are only efficient as industrial
warfare when industrial peace is essential to
industrial prosperity.
(6) Because Lock-outs shut down institutions which
ought to be profit-earning and tax-paying ; and
in a community properly organized economically
always are.*
(7) Because Lock-outs devised to lower wages by swelling
the ranks of the unemployed in times of high
prices, which no lock-out can reduce, tend to serious
social disorder.
a
98 "BROADSHEETS" ON NATIONAL FINANCE
STRIKES have no value—
(1) Because they are self-destructive, i.e., strikers
abandon their own means of subsistence and
must either starve to death, find other employment,
or give in.
(2) Because the further strikes are extended, and the
more strikers that are involved, the more are the
means of subsistence that are abandoned, the
more numerous will be the strikers that will starve
and the less chance will there be to find other
employment ; unless armies of strikers commit
wholesale blacklegging and thus end the strikes
by merely exchanging employment.
(8) Because Strikes put an end to the production which
supports not only the strikers but the community
of which the strikers form a part and thus occasion
organic disease in the body-politic to which the
strikers belong, akin to that of heart, stomach or
lungs ceasing to function in a human body.
(4) Because Strikes cause the most efficient workers
to emigrate rather than blackleg, leaving the less
efficient behind, reducing working-force efficiency
and productiveness, and lowering the rate of
remuneration which the industry affected can
ultimately pay.
(5) Because Strikes tend to foster the growth of industry
elsewhere at the expense of industry in the strike
area, and so to reduce the demand for the services
of the strikers.
(6) Because the only efficiency which strikers possess
in a National sense is efficiency to destroy.
(7) Because Strikes are an aid to the demoralization
of domestic life and the promotion of domestic
misery, whilst they never bring higher wages than
coiild have been obtained without strikes.
"BROADSHEETS" ON NATIONAL FINANCE M
(8) Because Strikes are the open door to riot and dis-
order and their anti-social consequences.
(9) Because Strikes of any magnitude derange every
walk of National life.
(10) Because the greater the strike the greater the ruin.
(11) Because Strikes involve no more brain power than
the kick of a mule.
(12) Because the essential principle of the strike is that
of the dog in the manger.
(18) Because Strikes are a colossal wastage of labour at
a colossal monetary loss to labour itself and very
material loss to the community.
(14) Because Strikes are quite incapable of maintaining
themselves, although a high degree of self-mainten-
ance is one of the essential qualities of real value.
Those three prizes : Strikes, Lock-outs, and Financial
Concentration, are thus a delusion and a snare, urging us
on to disaster ; but (1) Sound Legal Tender as a true standard
of value ! (2) Productive Credit-right I (8) Encourage-
ment of Production, not merely production in the sense of
more coal-getting or brick- laying by individual wage-earners,
but Production of all kinds by nation-wide private enterprise
to the limits of economic equilibrium ! These three would
save us t
They would reduce the cost of living.
They would increase the supplies necessary for Home
Consumption and for both Home and Foreign trade.
They would create that legitimate competition for the
services of wage-earners by which alone wage-earners will
ever come into their own.
They would multiply business in quantity and power
to an extent which would make the load of National debt
and the return u|X)n investments an easy burden.
They could be forced through the Ballot Box, for wage-
earners are numerous enough.
100 "BROADSHEETS" ON NATIONAL FINANCE
Neither Financial Concentration, Lock-outs nor Strikes
will lower prices or increase supplies or raise real wages.
Such sinister policies create two destructive armies I
On the one hand, the Inner Ring of High Finance direct-
ing and controlling the strategical use of Money and Credit
— the greatest force extant whilst contracts remain good ;
On the other hand, a few Leaders of Labour and of
general Wage-Earners who direct and control strategically
the mass-service of the people.
The Leaders of Finance misdirect their force to con-
centrate all power into their own hands.
The Leaders of Wage-Earners also misdirect their force
with the like object of concentrating all power into THEIR
own hands.
The vaulting ambitions of neither can succeed ; the
obHgations involved forbid !
The outcome can only be either Kaiserism or Bolshevism
(which is merely chaotic Kaiserism) or Chaos itself.
NOTES ON ALTERNATIVE TAXATION
AND CONDITIONS
TO THOSE INVOLVED IN THE LAST BUDGET!
IF THE LAST BUDGET HAD BEEN RECON-
STRUCTED ON THE LINES OF THESE NOTES
PREPARED AT THE TIME (1) THERE WOULD
HAVE BEEN NO UNEMPLOYMENT AT THE PRESENT
TIME, AND COMING UNEMPLOYMENT WOULD
HAVE BEEN AVOIDED, BECAUSE THE DEMAND
FOR SO MANY KINDS OF WAGE-EARNERS WOULD
HAVE BEEN SO INSISTENT; AND (2) THERE
WOULD HAVE BEEN NO COAL STRIKE BECAUSE
THEIR PRESENT WAGES WOULD HAVE BEEN
WORTH 28 PER CENT. MORE TO THE MINERS
THAN THEY ARE WORTH NOW. Bad Finance is
making Economic Conditions intolerable, and thereby placing
power in the hands of Extremists on both sides of the In-
dustrial War.
The Treasury requires Revenue on a great scale with
which to meet corresponding estimates of expenditure.
As provided for in the present Budget, the Revenue
will suffer through the Law of Diminishing Returns whereby
excessive Taxation of Production, and of Incentive to
Production, defeat its own ends.
Moreover, through scarcity, higher costs, and further
obligations, the Estimates are certain to be exceeded.
101
102 "BROADSHEETS" ON NATIONAL FINANCE
If the present Budget is to be persisted in these tendencies
must be counteracted by special conditions.
These conditions would be created if the Gold Monetary
Standard were restored and Credit-right estabHshed.
A. THE GOLD MONETARY STANDARD would
(1) lower prices to the gold basis ; the fall may be
gauged by the present market price of gold at
£5 35. Od. per ounce (now £5 17*. Od.) and the mint
price of £3 17s. 9d. ; not only gold, but all commo-
dities, would fall in price in this ratio ;
(2) reduce the costs of government and so tend to
prevent the estimates from being exceeded ;
(8) reduce the cost of living and tend to eradicate
unrest ;
(4) render production of goods possible at economic
prices ;
(5) tend to balance adverse exchanges ;
(6) create a world-wide demand for sterling bills, owing
to the fact that sterling would have a higher
purchasing power than any other medium of
exchange in the world ;
(7) make foreign countries eager to supply us with all
the raw materials needed for both home consump-
tion and export, for the sake of acquiring claims to
sterUng for the purchase of our manufactures at
the prices which, in sterling, would be so com-
paratively low ;
(8) enable the Treasury to sell Bills on favourable
terms wherever it required funds with which to
buy up maturing Bills or Debt held in a foreign
country ; and
(9) reheve the sufferings of those with fixed incomes
the value of which the changed money standard
so seriously depreciated.
'BROADSHEETS" ON NATIONAL FINANCE 100
B. CREDIT-RIGHT would
(1) Save from Bankruptcy those traders whose enter-
prises are adapted to high prices and who therefore
would suffer great losses in a general drop in prices
to the gold standard ;
(2) promote production in all directions to the utmost
capacity of the consuming markets, including both
home and exp)ort ;
(8) reduce unemployment to a minimum, maintain
high wages through competition for wage-earners,
increase the employment of labour-saving machinery
to a maximum, and entice surplus shopkeepers
into more productive work, with the effect of
causing blocks of shops to be converted into blocks
of residences as a cure for the housing shortage ;
(4) release vast sums from mortgages and debentures
for investment in Government loans, bonds, and
other securities or in fresh enterprises here and in
the British Dominions, Colonies, etc. ;
(5) displace the cost of the mortgages and debentures
from being a crushing burden on existing productive
industry ;
(6) reduce interest from 7 per cent, or 8 j)er cent, to
approximately 8J per cent., but restore capital
values of securities reciprocally. This position
would favour refunding operations and reduction
of the service of the National Debt ;
(7) reduce local rates ; and
(8) give a national privilege to productive concerns
which would encourage and facilitate the fbdng of
capital in this country on a scale which would
DEFLATE EXISTING CREDIT by putting more
realities in the form of new and true Capital Values
behind it.
104 "BROADSHEETS" ON NATIONAL FINANCE
HOW THE GOLD STANDARD MAY BE RESTORED.
(1) Remove the cheque tax.
(2) Promote a National campaign for extending the
use of cheques and the keeping of banking
accounts.
(8) Tax the use of legal tender by increasing the stamp
for receipts of amounts from £l upwards.
(4) Retain present stamp poundage for receipts of
cheque payments.
(5) Issue no further Treasury Notes of higher denomina-
tion than 5*.
(6) Open continuous loan for subscription by Treasury
Notes to be cancelled as they are received. (Sub-
scriptions need not be encouraged to an extent
which would remove the notes from circulation
too rapidly, i.e., in fewer than 93 days.)
(7) Meet the expense of cancellation of the notes out
of revenue or the proceeds of a separate loan.
(8) Close the loan for Note Cancellation when the notes
outstanding equal in nominal amount the gold
reserved against them. (The gold standard of legal
tender would then be in force.)
(9) For a necessary period convert the present Bank
Cash Reserves from Treasury Notes into short
date Treasury Bills. Further reserves, on which
further Bankers' credit in addition to that now
outstanding could be based by the Banks, should
consist only of gold deposited with the Bank of
England.
(10) If existing Banks are unable to cope with the large
increase in accounts and cheques, introduce the
current account system into the Post Office
Banks.
(11) Encourage the adoption of all known facilities for
certifying cheques and transferring credits.
♦BROADSHEETS" ON NATIONAL HNANCE 105
HOW CREDIT-RIGHT MAY BE APPLIED.
(1) Utilize Banking Machinery accentuated by the
extended Cheque System.
(2) As Bankers may now fabricate Credit as Loans
against Securities, permit owners of Productive
Properties (Manufacturing, Agricultural, Transport,
etc.) also to fabricate Credit by virtue of Credit-
right vested in such properties up to 50 per cent,
of their gold coin value, and to treat that Credit
like the properties as their own, not as their Bankers' ;
to be used by themselves free of charge ; just as
the Banker uses as his own the credit he fabricates
against the Securities of others free of charge to
himself, whilst lending it to borrowers at something
above Bank Rate payable to himself.
(8) Limit the application of the Credit to productive
purposes ; i.e., the creation of new instruments
of production, the extension of old instruments of
production and the redemption of existing charges
upon these.
(4) Give the fabricators of this productive credit the
necessary use of Banking Machinery at a charge
made by the banker for keeping the account.
Make the charge 1 per cent, for the first year and
\ of one per cent, for every succeeding year, on
the full amount of the credit during the period in
which any part of it is still outstanding.
On a thirtieth and final instalment this final
J of 1 per cent, would thus represent 15 per cent.
(5) Make the Credit redeemable by a fixed number of
annual instalments according to the ability to
pay judged by the probable life of the Income
from the property in which the right to the credit
is officially vested.
(6) Charge the property as security to the amount of
IOC "BROADSHEETS" ON NATIONAL FINANCE
• the credit and also with the redemption of the
credit.
Supplement this with the guarantee of the
Treasury in order to make every such Credit a
portion of the National Credit.
For this guarantee the fabricator of each
special credit would pay the Treasury a sum equal
to one-twentieth of the credit taken up.
This fee should be payable apart from the
credit, not deducted from it.
(7) Make the fees a Treasury Reserve held against any
future financial emergencies.
The Reserve would eventually become large
enough to support, if need be, the whole financial
system of the British Empire. It should be kept
at the Bank of England until extension of the
plan throughout the Empire enabled it to be
divided over the Empire and safe financial centres
in other countries also.
(8) Create an Advisory Council to the Treasury which,
amongst other things, would aim to prevent either
Productive Credit or Bankers' Credit from being
used to promote over-competition in any particular
Industry, and thus aim to establish equilibrium
between production and marketability.
Over- competition would also be limited by
the many different old and new occupations which
would then be open to the people.
Over-competition, like that in present-day
shop-keeping, is due to the fact that so few other
means of livelihood are open to the persons who
open superfluous shops.
NOTE. — The Credit-right Principle is necessary to the
restoration of the Gold Monetary Standard. The
extension of the Cheque System is necessary to both.
"BROADSHEETS" ON NATIONAL FINANCE lOT
We are the only people capable of a cheque system on
the necessary scale. Hence this country has the oppor-
tunity to place itself well in the van of all the nations
in attaining to power and prosperity never before
attained by any nation.
ASSUMING THAT THE BUDGET MAY BE CHANGED.
ITS UNSOUND FEATURES ARE :
(1) The Cheque Tax, which should be abolished.
(2) The Excessive Income-Tax, which should be reduced
and the minimum for exemption raised.
(8) The Excessive Super-Tax, which also should be
reduced.
(4) Excess Profits Duty, which should be abolished.
(5) The proposed Corporations Tax, which should not
be imposed.
They are based upon a sectional view of Industry,
which they promote to the detriment of the opposite view.
There is a standing and much-abused antagonism in
modem Business. This exists between :
The controllers of Banking, Credit and Money on the
one hand, and
The practical Commercial and Industrial Conmiunity
on the other.
The Financial Conmiunity endeavour to make media
of exchange relatively scarce and dear to independent
Commercial and Industrial Concerns ; whilst
The Commercial and Industrial Community are depend-
ent on the condition that media of exchange shall be relatively
plentiful and cheap.
The Budget is wholly on the side of the Financial
Community in enabling them to make Credit, which is the
chief media of exchange, both very scarce and very dear as
and when they choose. It must not only deprive many of
the Commercial and Industrial Community of eidsting
108 "BROADSHEETS" ON NATIONAL FINANCE
resources, but must also prevent the accumulating of further
ones, thus leaving them at the mercy of the great financiers
who are bent upon forcing the greater industries (and in the
process extinguishing minor necessities of the people) into
world-trusts, controlled by themselves, to be wrecked,
however, by the upheaval of the dissatisfied Industrial
Armies of workers that the Policy will produce.
The aforesaid Taxes are all Taxes either on Production
or on Incentive to Production, tending to restrict Production
at a time when its expansion, all statesmen agree, is a prime
necessity.
The Taxes cripple production by appropriating the
funds needed for the development, and even the maintenance,
of existing instruments of production, as well as for the
establishment of further ones.
These Taxes thus strike at the very roots of their own
and the nation's support.
ALTERNATIVE TAXATION.
The alternative to taxation on Production, and on
Incentive to Production, is Taxation on Consumption.
Examples of sectional taxes on consumption are Excise
Duties and Entertainments Tax.
A National Tax, ignoring sections of the nation, would
be a tax on general consumption. The rate should be 2d.
in the shilling (i.e., from one-halfpenny in threepence to
8s. Ad. in the £).
The Tax, in order to avoid its being a tax on production,
should be imposed only on Finished Products delivered to
the Consumer. The Entertainments Tax is not imposed or
paid until the Consumer is receiving the entertainment.
Most Entertainments would never eventuate if the Tax
were a charge upon their production.
So with every other product ; the more its production
is taxed, and the more the service rendered in producing it
"BROADSHEETS'* ON NATIONAL FINANCE 100
is taxed, by punitive taxation of profits, the less of the
product will be produced, and the less will be the incentive
to render the public service of producing it. The consequence
is that the product will become both very scarce and very
expensive.
Contrariwise : The removal of such Taxes both increases
and cheapens production.
In these conditions the suggested National Tax on
general consumption of Finished Products substituted for
Taxes on Production would so cheapen goods that a loaf,
for example, would cost less, including the National Tax,
than it now costs without such a Tax and with the price
kept down by subsidy.
The National Tax would yield fully £400,000,000.
It is sometimes said that all Taxes are paid by the
Consumer. The truth is this. If Taxes on Production
can be f>assed on to the Consumer, Production continues ;
if not, then Production either decreases or ceases. Hence,
when Production is the prime national need, Production
should not be taxed, either directly or by diminishing
incentive.
Competition, when the means exist, prevents the
Producer from abusing this position. (Within reason,
Credit- right provides the means.)
The collection of the National Tax on the consumption
of Finished Products could proceed on the lines of that of
the Entertainments Tax :
(1) Stcunps on purchases.
(2) Collection on certificate after provision of sureties,
etc.
*' WORK WHILE YE HAVE THE LIGHT T'
BURN THE INFLATED PORTION OF OUR PAPER
LEGAL TENDER
THE gathering darkness accelerated by the Coal Strike
has lifted a little owing to a partial and temporary
settlement with the Miners.
This cloud was the blackest and nearest of many.
None of them is yet dissipated. Their causes — purely
economic and preventable — are still in full operation.
Will this peaceful respite be utiUzed for the removal
of those causes, of which the fundamental ones are depre-
ciated Legal Tender Currency, and the need of Productive
Credit-right ? Or will the State be allowed to drift into
all the horrors of a Monetary Debacle ?
These horrors were produced by the Shin-plasters of
the American War of Independence, the Assignats of the
French Revolutionary Period, the Greenbacks of the American
Civil War, and the Rouble of Russia to-day.
" In France, in September, 1790, it became
impossible to meet the payments of the Public Debts.
The relief obtained by the first issue of Assignats was
too small to last long, and the ease with which it was
prociired caused a speedy recurrence to the same
resource."
" Mirabeau proposed to create new Assignats."
The proposal was carried despite the speeches of Talley-
110
"BROADSHEETS" ON NATIONAL FINANCE 111
rand, Antoin Morin, D^r^tat, and Dupont dc Nemours,
pointing out "the RUIN AND MISERY THEY WERE
CERTAIN TO BRING ON THE COUNTRY."
The last-named said, referring to the aforesaid Shin-
plasters :
** You have a striking example before your eyes.
There was, ten years ago, in the United States of America,
a paper currency secured like the one you propose,
on the honour and loyalty of the whole RepubUc, and
on an enormous amount of landed property, and by
the safety of the State. Well, in spite of all that
Congress, Washington and Franklin could do, a pair of
boots sold for £86,000 in paper^ and a supper for four
persons, for which ten dollars was the u^ual price, cost
£50,000 in paper.''
Such arguments were ignored by the Assembly. Yet
they were abundantly justified. The authorities in France
took drastic steps in regard to prices.
" These measures caused an almost entire cessation
of trade. Most of the shops in Paris and other towns
were shut. The retail dealers had purchased at higher
prices than the maximum and were speedily ruined."
Note below what II. G. Wells says of Petersburg to-day and
compare it with this description of Paris.
" Those who could keep going, only exposed for
sale their goods of the worst quality at the maximum,
and reserved the best for those who came to buy them
in secret, at their real value. Where formerly there
had been so much Ufe and animation, there was now
nothing but a sepulchral silence, and the shopkeepers
barricaded their doors, ready to escape by the back
at a moment's notice, on the appearance of the revolu-
tionary commissioners.
" The populace was seized with fury on seeing
the natural result of these measures, and besieged
112 "BROADSHEETS" ON NATIONAL FINANCE
the legislature for new and more rigorous laws to compel
the dealers to continue their trade.
" The meat was diseased and all sorts of provisions
were increased in quantity and weight by the most
abominable adulterations."
The Assignats destroyed alike the notions of value
and of money, multiplied prices four thousand times and
made way for Napoleon !
Russia is suffering like horrors to-day due to the Mone-
tary System — horrors coming more slowly and in a milder
form to the United Kingdom !
This is what H. G. Wells says (in The Sunday
Express) :
*' All these shops have ceased. There are perhaps
half-a-dozen shops still open in Petersburg. There
is a Government crockery shop where I bought a plate
or so as a souvenir for seven or eight hundred roubles
each.
" The shops have an utterly wrecked and abandoned
look ; paint is peeling off, windows are cracked and
some are broken and boarded up, some still display
a few fly-blown relics of stock in the window, some
have their windows covered with notices ; the windows
are growing dim ; the pictures have gathered two
years' dust. They are dead shops. They will never
open again.
" The roads are full of holes, like shell holes, often
two or three feet deep. Frost has eaten out great
cavities, drains have collapsed, and people have torn
up the wood pavement for fires. Every wooden house
was demolished for firing last winter. Every one is
shabby. The death rate in Petersburg is over 81 per
1,000. All trading is called ' speculation ' and is now
illegal. But a queer street comer trading in food and
so forth is winked at in Petersburg and openly practised
"BROADSHEETS" ON NATIONAL FINANCE 118
in Moscow, because only by permitting this can the
peasants be induced to bring in food.
" An egg or an apple (where it can be obtained)
costs 800 roubles. The credit and industrial system
that produced commodities has broken down. . . .
So that nowhere are there any new things."
That is the situation in process of development in Russia
which will ultimately throw it back into a state of a primitive
agricultural community after first making it a desperate
robber nation at war with half the world and a bone of
contention among Military Powers.
Our cheque system which has saved us from so deep
a depreciation of our Legal Tender Currency is losing its
power to save us further because our credit and industrial
system too is breaking down. Costs of Products are begin-
ning to exceed their value, because the cost of living controls
organizations that have no means of counter-controlling
the cost of living.
We are wrong in our conception of the relations between
Balance of Trade, Foreign Exchange and Sound Legal
Tender.
The Greenbacks of the Northern States in the American
Civil War, during the Inflation Period after the war, caused
the cost of living in 1865 to reach, according to Noyes,
the highest point recorded in the country's history. It
was removal of the need for so much of this Legal Tender
by the extension of the Clearing House System which
temporarily permitted the resumption of Specie payments
and brought Foreign Exchange to but a trifle below Gold
Point. But more was needed.
It is a false idea of the flnal solution of the problem
of the depreciated Greenbacks which has to-day led astray
governments, economists and financiers. It was the Wheat
Famine in Europe in 1897 which, through a prodigious
wheat crop of its own, enabled America to restore its Foreign
H
114 "BROADSHEETS" ON NATIONAL FINANCE
Exchanges and its whole financial position ; not however
because of its wheat Exports, as our own false Export notion
assumes, but because of the Manufactures and the Gold
that were received in exchange therefor. Both the gold
and the Manufactures together struck the balance between
the commodities exchanged. But the Gold did much more.
It provided the Legal Tender Greenbacks mth the necessary
backing of gold and thus supplied the only foundation on
which could rest the Resumption Act and all that this meant
in sound internal trading.
That is a vital, imperious, sovereign distinction ; a
master-key to the exchange problem.
Disparities in international exchange rates bear no
fixed relation to adverse trade balances. The United
Kingdom owes the United States hundreds of millions
of pounds and incidentally the money of the one country
is below par in the money of the other country by 28 per
cent.
Germany owes comparatively little to the United
Kingdom, yet its money is below par in our money by nearly
1,000 per cent., depreciated though our money is.
It might be said that the Indemnity provides the requisite
colossal adverse balance. But Germany owes comparatively
little to the United States for goods, etc., and nothing as
Indemnity ; yet its money is below par in dollars to an
even greater extent than it is below Sterling.
These considerations refute the argument that the
balance of trade is any more than a condition of some of
the phenomena exhibited by adverse rates of exchange
in respective moneys.
Advocates of the doctrine that adverse rates of exchange
are regulated by adverse balances of trade prove too much.
Observe this diagram : —
i
BROADSHEETS" ON NATIONAL FINANCE 115
GOODS
S£NT TV
Arm n^ppKAtma in
O^trrrhmfminq Jtorti'ot
a^Out Geo OS <mj\H4t
* Goods •
O. 5 J\,
ClctimA
to
f •
• British/ 1*
\ to ;
Nl SO'CAUe^
KjhfAJ^Hi IN
*Goods t
• • J*
• recei k^w ;
j Uv ,
G0005
ff£C£fV£D
//v
CAT.
By showing that the negotiation of Bills through Bankers
and the Money Market blocks the way to the transfer of
commodities from U.S.A. to U.K., and vice versa, this
diagram indicates that if the Balance of Trade regulates
the rates of monetary exchange, it is also true that those
who deal in monetary exchange regulate the Balance of
Trade. Thus the Balance of Trade argument begs the
question. It is certainly tnie that those who deal in monetary
exchange regulate the balance of Trade.
The point might be driven home with great force in
connexion with the final Financial Blockade of the Great
War. Suffice it to say, however, that unless the stoppage
of these financial faciUties could stop the passage of
commodities no such financial blockade would ever be
possible.
This financial control, through the Money Market,
116 "BROADSHEETS" ON NATIONAL FINANCE
over Trade and Commerce, may be used either to supply
or to deprive nations or individuals of all or any commodities.
Amalgamation of Banks nationally and internationally,
if the legal right to productive credit is not also created,
thus constitutes a menace which may reasonably excite
alarm. The truth is that rates of monetary exchanges
are dependent almost entirely on the moneys them-
selves.
In fact, the disparity in the prices of gold in the different
moneys is the disparity in the rates of exchange, subject
only to small details of trading technique. Some say our
Legal Tender has not fallen, but that the price of gold has
risen and thus they account for the high premium on
gold.
But the price of gold can neither rise nor fall if the
money in which the price is quoted is the gold itself or an
equivalent in legal tender paper backed by 100 per cent,
of such gold. Every effort to cure the disparity (1) be-
tween our Legal Tender and Dollars in exchange and (2)
between our Legal Tender and Gold (two ways of stating
the same thing), merely by balancing Trade, will prove
abortive.
When our Legal Tender Money is brought again to the
Gold Standard, as is yet possible in the requisite time by
means of our cheque system, we shall arrive at the true
cure for our economic crisis. Prices will fall in a way which
will reciprocally increase the purchasing power of our money.
Low Prices in standard Sterling will bring Gold, Raw
Materials and Orders here in abundance and take away
Exports in the form of Manufactures and Services that
will mean ultimate extinction of debt on much easier terms
than those now being incurred, and national prosperity
meanwhile.
The harm done by low prices to traders now dependent
"BROADSHEETS" ON NATIONAL FINANCE 117
on high prices must be offset by instituting Productive
Credit-right.
Our present pohcy in Money and Finance gener-
ally is leading to increasing strife and sectional starva-
tion.
MR. McKENNA ON '' MONEY AND
FOREIGN EXCHANGE.''
OBSERVATIONS ON THE RT. HON. REGINALD
McKENNA'S MANCHESTER SPEECH ON MONEY
AND FOREIGN EXCHANGE.
MR. McKENNA says : " Before the War and indeed
until recently, international exchange was little
understood outside a very Hmited number of experts."
That sentiment accords with the following, which
was written by the late G. J. Goschen : " But comparatively
few, even of leading bankers and merchants, with the
exception of those who are exclusively or mainly engaged
in international transactions, are as conversant with the
subject as its immense importance deserves."
That sentence from Goschen's Standard Work on
Foreign Exchanges is as true now as it was in the nineties.
Skilled Bankers may work in a highly efficient manner
with tools which they misapprehend, as skilled carpenters
may work efficiently with tools which they did not either
devise or make and of wliich they know nothing more than
that particular tools may be put to certain special uses. Yet,
as Mr. McKenna admits, " A misunderstanding of the nature
of money and of the problems of international exchange may
have very disagreeable consequences."
A fuller understanding of money and exchange would
probably have suggested the word " tragic " rather than
118
"BROADSHEETS" ON NATIONAL FINANCE 119
merely *' disagreeable," because first revolution, then
Bolshevism, under one name or another ranging from
Communism to Despotism, with warfare inevitably supreme
as both Government Policy and National Business ; and
finally, general social collapse, are amongst such conse-
quences.
That is the " level of calamity to which a currency
may fall." Russia, even yet, has not plumbed its lowest
depths.
Nearly all Europe and the United States are sinking
into the slough. This country, at least, if no other, could
be saved from such wreckage (and thereby be made strong
enough to help the rest) did certain bankers and statesmen
truly apprehend " the natiure of money and the problems
of international exchange."
Fortunately for him — as it relieves him morally of a
terrible responsibility — Mr. McKenna does not understand
the nature of money.
Using the word Currency as synonymous with Money,
he says : " Our currency derives its value from the law
which ' declares it to be L^al Tender for an amount equal
to its face value.' " This is inaccurate, because if value
could thus come from law the Treasury could print enough
Legal Tender to make everybody wealthy forthwith.
Mr. McKenna says : *' The value of gold currency is
determined by legal enactment." But that legal enact-
ment merely states, for the benefit of the Community,
that a certain quantity and quality of gold has a certain
value ; through the Mint it turns out that quantity and
quality of gold in a certified form, which it then protects
from being tampered with or imitated.
It is the gold, not the legal enactment, which gives
the value. As to precise quantity in a unit, Legislation
merely registered Custom.
The following accurate definition of Money is taken
120 "BROADSHEETS" ON NATIONAL FINANCE
from Charles Conant*s Principles of Money and Banking :
" The definition of Money which will be adopted
in this work is that commodity of intrinsic value accept-
able in exchanges which has become by law or custom
the usual tender for debt. Put into more popular
language, this means that the term money, under
existing conditions, is appUcable to gold or silver coin,
and should not be extended to the various forms of
paper which economize the use of money. For most
practical purposes, gold bullion held in bank reserves
is properly classed as money, and falls within the
definition given. It will be seen hereafter that in the
actual use of money in domestic transactions the coin-
age of the metals is an important factor ; but in foreign
trade bullion is quite as useful as coin, and in domestic
use bullion in bank reserves may be said, in a sense,
to be serving the purposes of coined and circulating
money through its paper representatives. The use
of the word money is extended by many authorities
to different forms of credit obligations — by some to
redeemable Government paper or redeemable bank-
notes ; by others to irredeemable paper of either type ;
and by still others to the checks (cheques) deposit
entries and various written instruments which are
employed in carrying on exchanges. The difficulty
about these extensions of the definition beyond coined
metal of intrinsic value is that there is no logical point
at which the things included in the definition of money
terminate. If the definition is extended to instruments
of paper credit, it is not clear why it should stop with
legal-tender instruments and fail to include bank-
notes which are not legal tender. If it is extended
to the latter, it is not clear why it should not extend
also to foreign bills of exchange, which are kept by many
of the European banks as a part of their coin reserves,
'BROADSHEETS" ON NATIONAL FINANCE 121
ready to be sold for coin whenever they have need
for it. . . . In so far as this theory ignores the necessity
for intrinsic value in the material of moneys it is likely
to lead to grave errors." Vol. I., Book I., Pages 4-6.
Our Treasury Notes, therefore, in so far as they are
not fully backed by Gold, arc not Money, but Money-
substitutes to be classed among '* the various forms of paper
which economize the use of money." The fact tliat gold
sovereigns are Legal Tender for face value, when gold is
at a high premium in Treasury Notes, does not give the
< .\' !( ign any value but takes some value away. Its effect
i>> to deprive the sovereign of its Legal Tender Currency
function by driving it into secret places and service or
abroad — anywhere out of range of such extraordinary
law.
" Par of exchange between countries is a constant
ratio by law," because other countries conformed to the
unit of standard gold which had been adopted by law in
this country in 1816, but so adopted because John Locke
had proved over one hundred years before that Custom had
already established it.
It is quite true, as Mr. McKenna says, that " when
this ratio varies, gold leaves the country with lower exchange
and goes to the country with higher exchange." Hence,
the more adverse the ratio the more adverse the exchange,
and, consequently, the less adverse the ratio the less adverse
the exchange. The adverse ratio means less gold-backing
to the legal tender unit concerned, which is generally de-
preciated, unsound, insolvent legal-tender paper.
This flagrant cause of an adverse exchange (which may
be rapidly remedied without injury to High Finance, if
High Finance is not permitted to order everything in its
own high-handed and narrow-minded fashion) Mr. McKenna
makes no reference to. But Foreign Exchange experts
have not ignored it.
122 ** BROADSHEETS » ON NATIONAL FINANCE
Referring to Depreciation of the Currency, Goschen
says {Foreign Exchanges, page 64) :
" We have thus discovered an influence
which apparently affects the fluctuations in
the foreign exchanges far more powerfully than
any previously discussed ; interest of money,
a balance of debts over claims, panic, distance,
and so forth, practically cause the exchanges
to vary within a few per cents. ; a variation
of ten per cent., owing to all these circumstances
combined, is considered something extraordinary,
and only occurs under rare combinations. but,
as soon as the element of currency is introduced,
we have had at once an instance before us in
THE Vienna Exchange of a variation of fifty
PER cent."
This proves that the more depreciated the Legal Tender
Currency, the more adverse is the ratio and by consequence
the more adverse is the exchange.
In other words, just as price-levels generally, in a
depreciated Legal Tender Currency, might be high, the price
of exchange for better Legal Tender must be high.
Mr. McKenna is therefore in error in stating that " the
ratio of exchange between any two countries is normally
determined by the ratio of their general price-levels."
This is a confusion of cause with effect, a case of putting
the cart before the horse, for it is the ratio of their general
price-levels which is determined by the ratio of exchange ;
which again is determined by the character of the Legal
Tender Moneys. (At one time prices in America were
always higher than in the United Kingdom for no other
reason.)
Mr. McKenna himself proves the weakness of his argu-
ment by first citing general price-levels as the cause and then
"BROADSHEETS" ON NATIONAL FINANCE 128
modifying this cause by others which are really no more
than further effects of depreciated Legal Tender.
He says : ** Without any alteration of price-levels '*
international exchange may "show wide fluctuation" and
cites seasonal changes in demands for particular commodi-
ties. As Goschen proves, however, when fluctuations in
those circumstances are voider there must be depreciation
in the Legal Tender Money of the prejudiced country.
Mr. McKenna further modifies his so-called rule by
saying : " The rule only applies to nations which have a
substantial import and export trade."
But is it not obvious that such a rule, if it were truly
a rule, would apply wherever there is any import and export
trade, and not merely in countries where that kind of trade
is substantial ? And is it not apparent that the state of
the import and export trade between all countries to-day
is being determined almost wholly by the ratio of foreign
exchanges ?
Mr. McKenna takes the case of Germany as a country
having little or no such trade to-day and incidentally makes
an interesting remark. He says : '* The value of the mark,
which formerly was !«., is now about Id." A little earlier
he had stated currency " derives its value from the law
which declares it to be Legal Tender." We are therefore to
presume that the German Law of Legal Tender designedly
made the value of the mark a penny instead of a sliilling I
Throwing this nde overboard, he says : " There nmst
be some other cause for the great decline in the mark, and
we have not far to go to find it."
This " find " is apparently no more than that " the
demand for foreign imports is abnormally great and the
power to pay for imports is comparatively small " 1
The mark of to-day is a different mark altogether from
the mark which used to be worth a shilling, just as our
£1 Treasury Note is a different £1 altogether from the coin
124 "BROADSHEETS" ON NATIONAL FINANCE
which used to be worth £1 ; but Mr. McKenna does not
give that cogent reason as any reason for the great decHne
of the mark in value !
He says that the seller of goods to Germany only
consents to take marks at a greatly depreciated rate of
exchange because he has to hold them for an indefinite
period until the German power of production is restored.
But this does not cause the low value of the mark. It is
an effect of the low value. If the marks were sound Legal
Tender correspondingly fewer of them would be accepted
despite German incapacity to pay in commodities. The
number of marks actually taken is determined in an over-
whelming degree by the lack of standard-gold-backing to
Legal Tender Marks, not by the cozening of any particular
seller into a consenting frame of mind.
It is an instance of the influence of unsound Legal
Tender Currency on rates of exchange.
Mr. McKenna states that " America does not wish
to take an obligation to pay reckoned in British Currency
unless this currency is sold to them at a reduced rate of
exchange." But this again is because the standard gold
behind British Legal Tender Money is less than that behind
American Legal Tender Money. Beyond comparatively
small differences to which Goschen refers, as above, the
rate of this American exchange can be practically normalized
by so reducing the quantity of our paper Legal Tender
that it will be brought to parity with the standard gold
which we possess.
Clearly the nature of Legal Tender Moneys, far more
than any other consideration, determines the price of all
commodities, including that of gold and of obligations
to pay reckoned in any currency. Clearly also, general
price-levels, whatever they may rise or fall to in connexion
with supply and demand, cannot be but very largely the
result of the character of Legal Tender Moneys. Under
"BROADSHEETS" ON NATIONAL FINANCE 125
tlicsc circumstances, Mr. McKcnna*s case that General
Price-Levels determine the ratio of foreign exchange, whilst
price varies with production, purchasing power and velocity
of expenditure, or the rate at which the national income is
spent ; and that therefore, by inference, production, pur-
chasing power and velocity of expenditure, or the rate at
which the national income is spent, determine the ratio of
foreign exchange, is almost wholly a myth.
The fact is that as the nature of our Legal Tender
Money mainly determines our rates of foreign exchange
and also our prices, so it determines as well our production,
purchasing power and velocity of expenditure, or the rate
at which the national income is spent.
Take PURCHASING POWER, which Mr. McKenna
regards as " the total of bank deposits and money in cir-
culation." When prices rise, purchasing power, whatever
its nominal amount, inevitably decreases ; the purchasing
power of a nominal pound note certainly decreases when it
will buy only 2 fowls at 10*. each, instead of 5 fowls at 4*.
each ; or one pair of shoes at 20^., instead of two pairs of
the same shoes at 10*. per pair. Now when the Legal
Tender Money, in terms of which both the said purchasing
power and prices must be named, has been itself reduced
in intrinsic value by half, it becomes obvious that prices
and purchasing power must be nominally doubled in order
to represent truly the previous relationship ; and when it
is known that the financial documents and obligations
underlying all the transactions in commodities to which
purchasing power and prices can have reference are being
constantly subjected to the acid test of parity with standard
gold it should become equally obvious that both in theory
and in practice the nature of our Legal Tender Money
determines prices and through prices determines purchasing
power.
Next, take PRODUCTION. Owing to both natural
126 "BROADSHEETS" ON NATIONAL FINANCE
and artificial inequalities in production the inflation of
prices, through depreciation of Legal Tender Money, operates
without any propriety or sense of proportion, and thus,
in business after business, costs are caused to exceed values,
until prices which seem Uke attempted robbery have to be
charged, or production must cease. At such times busi-
nesses with no control over the cost of living collapse under
demands forced upon them hy the cost of living.
Production is thus restricted, supplies reduced, and
prices rendered inordinately high by reason of the deprecia-
tion of our Legal Tender Money. This is happening now
when more and cheaper production is the crying need of
the day.
That the VELOCITY OF EXPENDITURE, or the
rate at which our national income is spent, is due to the same
cause — depreciation of our Legal Tender Money — goes
without saying. It not only raises prices directly, but by
reducing suppUes it raises them indirectly too. Nowadays,
from this cause alone, a lot of money goes a very little way,
whether the money be that of the Government or of the
private individual. The depreciation of our Legal Tender
Money has produced conditions which give money wings
that make it fly, and for millions of the people make it a
mockery to talk to them of Saving !
Therein lies the irony of the methods for reducing
prices proposed by Mr. McKenna, as follows : —
(1) Save larger proportion of income.
(2) Increase production by harder work.
(8) Diminish purchasing power.
(4) By the power of the Government over Taxation.
He does not suggest the greatest method of all, that
we shall make our Legal Tender Money sound, which it is
well within the power of the Government to do, if short-
sighted Financiers wiU permit them — Financiers who, but
for the support of the Government, would be of small accoimt.
"BROADSHEETS" ON NATIONAL FINANCE 127
It is not to the restoration of sound Legal Tender that these
Financiers object, but to a certain admission of others
into the magic circle of credit that must now inevitably
po with it.
Production would then be increased by increasing
the instruments of production ; purchasing power might
be nominally decreased whilst actually increased, a larger
proportion of income could be saved because a smaller
proportion of income would be required for living expendi-
ture and the Government could reduce taxation generally
by being able to obtain its requirements for less money,
and specially by enabling a greater number of individuals
to pay without impoverishment.
Best of all we should be the arbiters of our own fate,
not dependent as we must be, according to Mr. McKcnna*s
methods, upon expenditure being *' reduced " in ALL
countries. One wonders, if all exf>enditure in all countries
were suddenly to CEASE, where the world would be !
Mr. McKenna says we require more efficient methods
and strong and certain policies. What these would be,
or do, one cannot say. But we certainly require strong
and certain Legal Tender Money 1
Nationally-guaranteed Credit-right for productive pur-
poses, based on 50 per cent, of productive properties, accord-
ing to their gold values, is now essential as a safeguard in
rapid restoration of sound Legal Tender. Its products
would soon include a powerful, prosperous people. What
par of Standard gold is to sound Legal Tender, a powerful
prosperous people is to a State.
OPEN LETTER TO THE VICEROY-
DESIGNATE OF INDIA
THE RT. HON. THE EARL OF READING,
P.C, K.C.V.O., G.C.B.
MY LORD, — In an era of false economics and fictitious
money, when men of understanding see their
business imdertakings being sucked into a whirlpool of chaos
and destruction — at this great crisis in British relations
with India, your appointment to the high office to which
you have been called is welcomed by all who appreciate the
brilliant statesmanship, diplomatic skill, financial knowledge
and patriotism that the solution of the fundamental problem
to be solved requires.
In Great Britain and Ireland, Industry and Finance
are each approaching a distinctive deadlock, and the cause
is primarily Legal Tender.
In India the Crisis is due to the Rupee, the character
of which was altered in August, 1920, in the first paragraph
of Section 11 of the Indian Coinage Act of 1906 by sub-
stituting the word " ten " for " fifteen," thus making the
sovereign Legal Tender for ten rupees instead of fifteen.
The clause now stands as follows : —
Gold coins, whether coined at His Majesty's Royal
Mint in England or at any Mint estabhshed in pursuance
of a Proclamation of His Majesty as a branch of His
Majesty's Royal Mint, shall be legal tender in payment
128
" BRO.\DSHEETS " ON NATIONAL FINANCE 129
or on account at the rate of ten rupees for one sovereign.
Under Hoarding in Vol. II., Page 814, Palgrave*f
Dictionary of Political Economy^ the foUovdng appears :
" The most extensive system of hoarding of which
there is any record is that which exists in India, and
has been going on there for a very long period. This
has undoubtedly arisen from the unscrupulous character
of former rulers of the country, and the habits induced
by ages of misgovernmcnt continue to influence the
people in their present condition of security and under
their increased opportunities. Both gold and silver,
in the form of bullion, of coin, and ornaments are hoarded
by the natives of every class. Estimates as to the
amount of wealth lying dormant in this way differ very
much, but the population is so numerous, and the habit
so universal, that the amount must be very large.
Enormous hoards are known to be in the possession
of some of the native princes ; and from the age of some
of the coins contained among these treasures it is evident
that the accumulation must have commenced hundreds
of years ago."
By this time the value of the gold hoarded and active
in India must far exceed the value of the silver.
But all the gold, or claims to gold, possessed in any
form by those of every class of the population having
obligations to pay in rupees is now struck down by one- third
in lawful value. If they offer gold in settlement of those
obligations they find that what they could recently offer as
15 rupees they can now offer as no more than 10. If they
were to part with the gold they would find in the process
that one-third of it had been confiscated.
Naturally they decline to part with it in these utterly
unjust, even if lawful, circumstances.
The consequence amongst extremists is Sedition and
amongst moderate people Consternation ; to be followed by
I
180 "BROADSHEETS" ON NATIONAL FINANCE
stagnation in trade, financial failures, robbery, murder,
famine and pestilence — all in due succession.
For as the gold in India disappears its purchasing power
will disappear, too, and its efficacy in the promotion of trade
will be absolutely paralysed.
The gold supporting the paper rupee will disappear.
The paper rupee will become depreciated and the purchasing
power (equivalent to 2s.) with which it was to be endowed,
by a foolish statute, will fail to materialize.
Ten rupees, rated at ten to a sovereign, will no more
buy other commodities than it will buy gold. Law may
take the horse to the water but cannot make it drink. In
this case Law will better preserve respect for itself by
retracing its steps.
Whilst the vast majority of the nation suffer, silver-
dealers alone smile and rub their hands.
The silver rupee and half-rupee is legal tender in India
for any amount, and under the Statute referred to ten silver
rupees may be offered as the equivalent of either a sovereign
or £1 — a distinction with a difference I
But that which will in fact be obtainable either here
or there for Ten Silver Rupees will not be equal to the weight
of fine gold in a sovereign, but instead to no more than the
amount of fine gold in ten-thirty-secondths of a sovereign.
Why ? At the present relative values of gold and silver
in British Legal Tender one unit of gold is equal to more
than 32 units of silver, gold being quoted at £5 135. Sd. per
ounce and silver at Ss. 5|d. To create a false ratio of 10 to 1
instead of 32 to 1, claiming a rupee to be one- tenth instead
of one-thirty-secondth of a sovereign, though it may be
good for silver dealers and enable the Mint to score in coinage,
is rather slim than honest and would be wholly unworthy
of a Gk)vernment, even if it could be made a lasting measure.
The present Government of India may lend a willing
ear to those of its advisers who desire to maintain an artificial
"BROADSHEETS" ON NATIONAL FINANCE 181
value of silver. It is probably tempted to do this by the
profit or seigniorage which accrues from the coinage of the
metal. It is officially stated that the rupee coinage of the
Indian financial year 1919-1920 (coinage ranking as unlimited
Legal Tender) amounted to 87,05 lacs, involving nearly 188
million ounces of standard silver, which means that the cost
of each rup>ee was less than Is. 8d., while the coin received a
face value of 28. ; or that in total the cost was about
£22,000,000, which was endowed by legal magic with a legal
value of over £87,000,000.
It should be noted that no legal enactment under these
conditions can make the real value of the rupee, whatever
its nominal value, more than 1*. 8d. ; and, further, that this is
not a pre-war 1*. 3d., but one which is much depreciated below
pre-war value.
Under the change in the Coinage Act alluded to, not
only is this £22,000,000 in silver made Legal Tender for
£87,000,000, but it is raised to an equahty with more than
£50,000,000 in gold, for that amount of gold is not permitted
to be Legal Tender for more than £87,000,000.
This is worked out as follows :
£22,000,000=188,000,000 ounces of Silver at Ss. 5jd. per
ounce.
188,000,000 ounces of Silver =Rs.87,05,00,000, or 87,05
lacs of rupees.
Rs.87,05,00,000 . . . . =87,050,000 Sovereigns at
10 Rupees to the Sovereign.
87,050,000 Sovs. .. =about 8,750,000 fine
ounces of Gold.
8,750,000 fine ounces of Gold = about £50,000,000 at the
market price of £5 18^. 8d. per ounce.
But the serious character of the subtle manipulation of
Indian Legal Tender in favour of silver-dealers may be made
even more apparent.
According to the true ratio of the metals in the market
182 "BROADSHEETS" ON NATIONAL FINANCE
one ounce of gold is worth more than 32 ounces of silver,
gold is worth thirty-two times silver ; £22,000,000 in silver
should be regarded as one-thirty-secondth part of thirty-two
times itself ; that is, it should be regarded as merely
£22,000,000. Yet it is in fact regarded as one-TENTH of
thirty-two times itself, or £70,400,000, nearly three times its
true value.
This method of calculation, based on the purchasing
power of both silver and gold, expresses the full advantage
which the instigators of the change in the Statute vainly
tried to confer on silver at the expense of gold. When gold
is not allowed to pass current at its full value whilst an
attempt is made to force silver to pass current at three times
its full value, intelligent Indians must have disquieting ideas
of the sense of justice of the British Government of India.
The Statute has made not value but trouble !
It is not surprising that India is seething with discontent.
The price of this futile effort to defy the laws of equahty
will be the loss of India ! — unless your Lordship arrives
there in time to " stop the rot."
The economic position of this country in relation to
India now is that India cannot buy our goods, goods already
supplied she cannot pay for, 30-day bills are running for
120 days, because Bankers dare not press for settlement lest
a panic should ensue ; and quotations for supplies to India
by foreign countries not called upon to underrate our gold
or overrate our silver in legal tender imdercut our prices
in amazing ways.
In the case of goods from the same British catalogue
the Continent is quoting in Sterling at 40 per cent below
catalogue price whilst firms here must quote 27^ per cent,
above catalogue price! But though the British Trader is
thus sacrificed even then India cannot buy !
To save India for the Empire, my Lord, and to help to
save the Empire, look to this unscrupulous manipulation of
" BROADSHEETS " ON NATIONAL FINANCE 188
Money and Credit. India requires a single standard of value.
The Gold Rupee. This Rupee must be a proportionate
part of the standard gold contained in a sovereign ; one>
fifteenth or one-tenth, as you will. But it must be the only
unlimited Legal Tender.
It may be made of paper issued against gold, paper
which must as quickly as possible be based wholly on gold.
The necessary token coinage may be of nickel and bronze.
Silver must be left to itself as a mere conmiodity. In its
capacity as a commodity, and with some help from the
Government where the help is deserved, it will still serve
as a medium of exchange without being endowed with the
quality of Legal Tender. The cost of the help given will be
the price of saving India, and the help will be due to those
who honestly believed as a consequence of the action of the
Government of India that the silver rupee was really worth
one- tenth of a golden sovereign.
Gold standard values in both this country and India
will loosen the trading deadlock. Continental legal tender
might be at a still heavier discount in Sterling, and Sterling
would buy more Continental legal tender in the same way
as it would buy more of everything. But India could buy ;
business could be done. Even if it were done by the Con-
tinent, it would not be because the Sterling obtained would
enable the Continent to buy its own Legal Tenders but more
importantly because the Continent could use the sterling
and its great purchasing power for the purchase of more
goods either in this country or in India itself, thus bestirring
trade in the one or the other or in both.
I take leave to subscribe myself.
My Lord,
One of your Admirers and WeU-Wishers.
WILL GERMANY WIN YET ?
INDEMNITY AND CARRYING TRADE
To THE Editor of " The Daily Telegraph."
SIR, — The proposed settlement of the German indemnity
has brought this country to the edge of a precipice.
One can only hope that Mr. Lloyd George " convinced against
his will is of the same opinion still."
In practice the debt must be paid by the purchase
and remittance by Germany of bills of exchange drawn on
the Alhed countries. German exporters, having bills to sell
drawn on London or Paris, for example, will profit by the
abnormal demand for these bills by the German Government
for indemnity payments. This demand, expressed in much-
diluted legal tender, will send the bills to a patchwork
premium. The premium will enable the German exporter
to undersell his rivals in other countries. These exports,
encouraged by the Governments of the receiving countries
in the interests of the indemnity, will undermine the home
industries of those countries. If a tariff wall is erected to
keep out the offending exports, the indemnity cannot be
paid. The Allied countries are thus placed on the horns of a
dilemma. They must either suffer in trade or be disappointed
of their indemnity.
In these circumstances it may be that the true object
of the proposed 12 1 per cent, tax on German exports is to
circtunvent this possibility of Allied industries being imder-
134
"BROADSHEETS" ON NATIONAL HNANCE 185
sold. Does that settle the question ? Twelve and a half per
cent, in being added to the price of the goods must diminish
the chance of their materializing as exports. If the 12 1 per
cent, were not added to the price of the goods, this part of
the indemnity would be payable by exporters alone. But
the export trade could not survive such discrimination against
it. Exporters would go out of business. The German
Government might, of course, commandeer goods for export,
and so endeavour to carry on the export trade ; but that
would necessitate a Conmiunist or Bolshevik regime. Even
then, however, the proposed importing countries as repre-
sented by individual traders might not buy goods with 12 J
per cent, added to their price ; not to speak of a possible
tariff against them.
The German export trade may, therefore, be destroyed.
But if it is destroyed, how can any indemnity be paid ? If
nothing comes from Germany, nothing is paid. Anything
that comes must be in the form either of goods exported or
transport charges or travellers' expenses in Germany, or the
transfer free of charge of foreign securities owned by Germany.
With her export trade destroyed and her foreign securities
hypothecated or sold, as they have been, her only chance of
paying the indemnity can come from services rendered, e.g.,
if the rest of the world make Germany the great highway of
the European continent, diverting to her railways and
rapidly-growing mercantile marine the major p>ortion of
its carrying trade, thus gratifying her pre-war ambitions.
When she had supplanted Great Britain in this great service,
bills being drawn against it and remitted in redemption of
her debt for a period long enough to put those engaged in
our carrying trade out of business, what would become of
the balance of the indemnity ? What would Great Britain
have gained from 22 per cent, of the paid-up part of the
indemnity against the loss in wealth and power that the loss
of her carrying trade would involve ? To whom would the
186 "BROADSHEETS" ON NATIONAL FINANCE
power, and ultimately the wealth, have accrued ? Who, in
fact, would have won the war ?
It may be contended that the 12 1 per cent, will not
interfere with the export trade, because the tax will be
imposed, not on exporters in particular, but on the German
community in general, to an amount regulated by 12 1 per
cent, on the value of the exports. But the payment over
to the Allies is the crux of the question. The German
Government might export on its own account in order to
obtain credits to the 12 1 per cent, extent in the countries
where its payments were due. But it would thus enter into
competition with the exporters of its own country. This
would have serious effects on the general export trade,
including that against which the bills had to be drawn that
the German Government hoped to buy for use in settlement
of the fixed indemnity instalments. In order to avoid this,
the payment over to the Allies would again take the form
of the purchase of bills drawn mainly against carrying
charges, if the payment were made at all.
UNDESIRABLE ALTERNATIVES
Under the present scheme of reparation or indemnity
the Allies are therefore confronted with three undesirable
alternatives :
1. The undermining of their industries.
2. The loss of their carrying trade, plus the gain of it
by Germany.
8. The cancellation of the indemnity by the Allies or
the repudiation of it by a strong Germany.
Even if Germany had not eventually the will to repudiate
such an indenmity it would sooner or later, from purely
economic considerations, be confronted with the necessity
of doing so.
The indemnity is as follows:
"BROADSHEETS" ON NATIONAL FINANCE 187
Annuities, bearing no interest, which constitute ftxed
instahnents :
2 of £100,000,000 each = £200,000,000
8 of £150,000,000 „ =« £450,000,000
8 of £200,000,000 „ = £600,000,000
8 of £250,000,000 „ = £750,000,000
81 of £800,000,000 „ = £9,800,000,000
42 £11,800,000,000
In addition to this, the German people must pay 12|
per cent, on the value of their exports. The normal value
of these before the war was about £400,000,000 per annum ;
12 J per cent, on forty-two times £400,000,000 must therefore
be added. This is one-eighth of £16,800,000,000, or a
further £2,100,000,000, bringing the positive total up to
£13,400,000,000, payable in forty-two years.
But this indemnity has a negative aspect. To its
deprivations should be added the further deprivation of that
part of income which is normally reinvested in the develop-
ment of industry, the absence of which would progressively
reduce the paying capacity of Germany simultaneously with
the increase of its obligations. If internal debt in Germany
must be repudiated, it is certain, despite either actual or
threatened pimitive measures, that external debt must be
repudiated also, because the repudiation of internal debt
would destroy the capacity to redeem external debt. But
if internal debt is not to be repudiated, the colossal weight
of such an external debt cannot in addition be borne. The
two together would render industry futile as an occupation
to the masses of individuals required to carry it on. National
industrial paralysis would ensue. At the earhest opportunity,
compelled by necessity, the German people, united to a man,
would shake itself free from the domination and the debt of
the Allies.
That must be the outcome if Germany agrees to, and the
188 "BROADSHEETS" ON NATIONAL FINANCE
Allies enforce, the form of indemnity now proposed. How-
ever, there is another method whereby a proper indemnity
can be paid. The German Government may act as purchas-
ing agent for the Allied countries, paying for the purchases
which it may make on their behalf. It may purchase specified
quantities of agreed merchandise from its own industries
and supply them at an agreed gold-standard price to the
Governments of the respective Allied countries, who, again,
may sell the goods to their own merchants at market price.
The home credits so derived, the AUied Governments may
credit to Germany's indebtedness. Next, the German
(Government may subsidize imports from the respective
Allied countries of agreed quantities of agreed merchandise,
and take credit for the gold-standard value of the agreed
subsidy paid in respect of those imports. A special indemnity
tax, rather less than the equivalent of the German subsidy,
must be imposed by the Allies on the merchandise exported
under these conditions. The nature of the merchandise
agreed upon for this piirpose must be regulated by the
economic needs and convenience of the AlUes.
The quantities of the various kinds of merchandise
must be hmited to annual proportions that will not seriously
prejudice the economic exigencies of Germany. In monetary
terms, £100,000,000 per annum probably represents that
limit. In 100 years Germany would thus have paid
£10,000,000,000. No interest should be chargeable except
upon instalments, the payment of which had not been
completed within their allotted years.
There are other means than further help from Germany
whereby the AUies may speedily ensure their own recovery.
This country should lead the way, but it has not started yet.
— Yours, &c.
January 81, 1921.
GERMAN INDEMNITY
NOTES TO BEAllER
To THE Editor of " The Daily Telegraph."
SIR, — I observe that, as evidences of her debt, Germany
is to give notes payable to bearer for the annuities ;
that these notes are negotiable securities ; that if they arc
effectively guaranteed the recipients can raise loans on them ;
and that they will have the endorsement of the Allies, for
otherwise they would have no market value and nobody would
lend money on them. All this means that this paper is to
be circulated in the Allied countries by being made the basis
of loans obtained by the recipients, who, in the first place,
are the Governments of the respective AUies, and also the
guarantors.
The Allied Governments are, therefore, to put into
circulation (ierman papjcr, for which good value is to be
given, in exchange by the nationals of the victorious countries.
The Allied Goverimients guarantee that this paper is good
enough to get value out of their own people, although it is
not good enough yet awhile to get such value out of the
German people. This is clearly an attempt to make German
paper as good currency in all the Allied countries, as the
currency of each country is within its own boundaries ;
and, moreover, seeing that the German currency is to be
guaranteed by all the Allies, better currency in each Allied
country than is the currency of one Allied country in another.
It is an amazing proposal. If the Allied Governments use
139
140 "BROADSHEETS" ON NATIONAL FINANCE
their power to make German currency practically equivalent
to legal tender over nearly all Europe, they are serving, not
a beaten foe, but a conqueror, and giving the best service
a conqueror could exact.
This would be too obvious if the almost worthless paper
marks, which are the direct obligations of the German
Government, were imported in settlement of the debt for
the time being, and openly forced upon the pubHc as vaUd
payment. It would be hard indeed for the public then to
realize that we had won the war. Yet these evidences of
debt are no different in principle. Under the circumstances
one could not be surprised if our Treasury should print off
Treasury notes at cost of printing to the order of the German
Government for the amount of our portion of the debt, and
accept them, for enabling us to pay ourselves what we do not
owe ourselves but which is owed to us by Germany.
So much for the fixed instalments of the indemnity.
On the subject of what was described by the Press unani-
mously as a 12 1 per cent, export tax, it is interesting to note,
in the account of an interview in yoiu* issue of to-day with
Commendatore Giannini, the originator of the idea, that
this is not an export tax and that it is not 12 1 per cent.,
but 12 per cent. ; also, that it is a percentage on all export
receipts. It is a percentage that the buyer, whether an Ally
or a neutral, is not to pay and pass it on to the Allied or neutral
consumer as he would inevitably have to do in the case of
a tax on exports properly so-called. Commendatore Giannini
is, however, playing with the fire he deprecates when he
proposes that the percentage shall be collected from the
buyer. The German exporter is to be reimbursed by the
German Government for the deduction from the payment
for his goods. That again is a dangerous expedient. It
savours very much of a subsidy by the German Government
on Germany's exports to all parts of the world. This would
be a splendid thing for Germany if all the world would
"BROADSHEETS" ON NATIONAL FINANCE 141
stand it. The power of finance through the machinery of
price-rings is quite capable of arranging who shall actually
pay that percentage on the subsidized imports from Germany.
Meanwhile, it is admitted that the Governments who
will receive the indemnity will receive it in the currencies
of the Allies, plus the kroner, pesetas, dollars, etc., which
it is intended foreign and neutral countries shall collect for
the Allies against goods which Germany is to be paid for.
When this proposal can be put forward it is not surprising
that a belief was widely entertained at the Peace Conference
that the Italian delegates were not as intent as any of the
other Allies upon making Germany pay.
The outlines of a real method of obtaining a real indem-
nity were put forward by me in 1918 and again in my letter
in your issue of February 1. A striking difference between
this method and the above is that Germany would have to
subsidize imports from the Allies into Germany, not exports
from Germany into the Allied countries. The difference is
vital. In respect of the exports representing payment of
indemnity, the German Government would have to pay the
whole cost in Germany. The Allied Governments would
receive them free and sell them to their own merchants,
pocketing the proceeds. — Yours, &c.
February 2, 1921.
LEGISLATIVE CORKS ON TROUBLED
INDUSTRIAL WATERS
THE TRADE RESOLUTIONS
Resolution I. — Protection of Key Industries.
That for a period of five years from the passing of an
Act for giving effect to this resolution there shall be
charged on any of the following articles imported into
Great Britain or Ireland a Customs duty of an amount
equal to 33j per cent, of the value of the article, that is
to say : etc.
Resolution II. — Prevention of Dumping and
Balancing of Exchanges.
There shall be charged on any of the following articles
imported into Great Britain or Ireland, in addition to
any other duties of Customs chargeable thereon, a
Customs duty of an amount equal to 33j per cent,
of the value of the article, that is to say : . . etc.
IT is true that the trade of the country needs several kinds
of protection, and now, of all times, protection from
such resolutions as these.
Resolution I. provides for a 33 1 per cent. Customs
Duty on the importation of certain goods which represent
key industries.
It provides, therefore, for an equivalent increase in the
prices of these goods, and also in the prices of goods in the
industries opened by these keys.
142
"BROADSHEETS" ON NATIONAL FINANCE 148
These prices are already inflated by quotation in incon-
vertible paper which is the legal tender money of the
country.
In the Resolution the words, ** the value of the article,'*
in order to be properly interpreted, should be " the incon-
vertible-paper-money-value of the article " — a very different
factor of the problem.
The resolution provides, therefore, for raising already
inflated, uneconomic prices by 88| per cent., further increasing
the inflation by a portion of this 38 J per cent., and for corre-
spondingly reducing the buying power of the money which
the wage-earner and persons of small income must expend
day by day in order to live.
The Resolution does not provide that the key industries
SHALL be carried on in this country and so create more
employment.
Tariffs cannot build up Industries on small markets and
inconvertible paper legal tender. Industries can be erected
on high or low prices, but not on false pretences in prices.
The Resolution does not provide that these industries
shall NOT be removed to places where '* keys " can be
obtained more cheaply.
It does not provide that manufacturers SHALL enter
upon industries dependent upon products which they know
can be produced more cheaply elsewhere, industries which
they will have to abandon in five years — a period which is
neither evanescence nor permanence, but merely prolonged
anxiety. The Resolution does not provide a sure market
for these expensive products, although that alone could
warrant their production.
All of which means — that it will reduce employment,
that it will create demands for more doles (the certain symp-
toms of economic disease), that it will concentrate our vast
national burdens on fewer industries, and that it will so pro-
vide the last straws for breaking the backs of the industrial
144 "BROADSHEETS" ON NATIONAL FINANCE
camels which are already almost solitary figures in a rapidly
extending industrial desert.
Resolution II. provides that on certain goods the afore-
said inflated paper prices shall be raised in some cases by
38 1 per cent. +33^ per cent. + (in the case of Indemnity
goods) 50 per cent. = 116j per cent.
It provides moreover for a general hold-up of trade in
the goods affected.
In this way :
The Resolution says : " For the purposes of this resolu-
tion * cost of production ' means the CURRENT STERLING
EQUIVALENT of the wholesale price at the works in the
country of manufacture."
But as SterUng is represented by inconvertible paper
money, the value of which changes daily and differentJy in
different places at different times and seasons, and is therefore
unstable; and as this instability will be added to by efforts
to give one place an advantage over another at a given time,
it is plain that fluctuations will be too bewildering to cope
with and stagnation will result.
This resolution, again, does not provide that goods, if
excluded, SHALL be manufactured here. It infers that
they MAY be, and so may provide employment.
It does NOT infer what is much more likely, namely,
that industries especially dependent on some of the goods
may be forced to take them for a time at any price, until,
with a few favoured exceptions, they are " down and out."
THE RESOLUTIONS STRIKE A SUICIDAL BLOW
AT THIS COUNTRY !
THEY WILL STRIKE NO BALANCE IN
EXCHANGES !
BUT THEY WILL STRIKE ALREADY STRICKEN
COUNTRIES WITH FURTHER INDUSTRIAL
PARALYSIS 1
"BROADSHEETS" ON NATIONAL FINANCE 145
More Industries are needed — more employment is
wanted — more Financial Liberty is wanted — but the Resolu-
tions will not bring them.
Figiu-atively, the resolutions do not put the cart before
the horse, but they turn the horse in the shafts, facing the
cart, with wholly mischievous results, the horse quivering
and frightened, the pinioned men and women in the cart
angry, while a few big traders motor by smiling at the predica-
ment of their humbler fellows.
BEFORE THE NEW CHANCELLOR OF THE
EXCHEQUER (supposedly the responsible author of the
resolutions, and said to have blessed the " TER MEULEN **
Credit scheme— a crowning iniquity) IS PERMITTED TO
PILOT THESE RESOLUTIONS THROUGH A FINANCE
ACT HE SHOULD BE REQUIRED TO EXPLAIN TO
THE HOUSE OF COMMONS AND THE COUNTRY
THE TRUE NATURE OF OUR PRESENT LEGAL TEN-
DER AND THE FUNCTIONS WHICH IT IS ACTUALLY
PERFORmNG IN TRADE AND BANKING, TO THE
DETRIMENT OF THE PEOPLE, THE NATIONAL
INTERESTS, PRODUCTION AND EMPLOYMENT.
THE TRUTH ON THIS SUBJECT, WITH ITS
SEMI-LEGAL FICTIONS AND CUSTOMARY FICTIONS,
WILL REVEAL THE REAL CAUSES OF THE TANGLED
INDUSTRIAL SKEIN, TO UNRAVEL WHICH MEN
CAN VAINLY BLUNDER INTO SUCH UNWISE AND
MERCILESS RESOLUTIONS.
THE NATIONAL AGONY I
THIS is great already and will grow much greater. The
cause is not workers and employers, but misapplied
power in the hands of so-called statesmen who are merely
obstinate politicians, ignorant (whatever their educational
pretensions and attainments) of the A B C of National
Economics.
That ignorance is proved by a toleration of inconvertible,
or partially inconvertible, Legal Tender Paper Money which
must not be charged to expediency because nothing could
be less expedient.
What is a Treasury Note ? It is a Sight Bill of Ex-
change which by law the public must meet and meet again
by finding commodity or service value for it EACH TIME
IT CHANGES HANDS.
Ordinary bills of exchange, by whomsoever endorsed,
need not be accepted without ample proof of value.
A Treasury Note must be accepted irrespective of
value.
All bills of exchange, including Treasury Notes, are
credit instruments. The Credit used is necessarily Banking
Credit. When Banking Credit, in the judgment of Bankers,
is too expanded, it has to be contracted. Contraction of
credit stops the production and circulation of commodities and
services^ and thus the legal obligation of the pudlic, to meet
Treasury Notes with commodities and services, is strangled by
the basic principle of the Treasury Notes themselves!
The Public are squeezed so unmercifully that even the
146
"BROADSHEETS" ON NATIONAL HNANCE 147
most apathetic of them (not merely miners and Triple Alii'
ances) are finally forced, as a National Alliance, to show
fight.
The Government or the Constitution which has then no
remedy, except fighting back, is doomed.
There is a further very vicious aspect of these notes,
which, in order to avoid particularization too near home,
I shall illustrate with Federal Reserve Notes. These, in the
United States, are, like our Treasury Notes, " inconvertible,
or partially inconvertible, legal tender paper."
When sellers of goods, not being paid but requiring funds,
draw bills on their debtors in order to discount the bills ;
and when buyers of goods, who cannot pay at the time, either
have bills drawn on them, or give promissory notes, for dis-
counting purposes, the Bills represent the Debts of Debtors
who cannot pay for the time being, and the problem they
present is how to compel some one else to pay until the real
debtor can conveniently do so.
To solve the problem, the Banks, with the connivance
of the Government, expressed in the Federal Reserve Banking
Law, give, in exchange for the Bills, Federal Reserve Notes.
These are an obligation forced on the general public in that
they cannot be refused in business transactions, as private
Bills may be refused, because to refuse payment offered in
Legal Tender is unlawful.
(The Banks make issues of notes on the Bills
directly, or indirectly through other Discounters, and
the Federal Reserve Notes are issued to member
Banks of the Federal Reserve System, although other
notes are in circulation against the self-same bills ;
than which, however, we have done even worse.)
Thus the holders of goods, properties and services, which
in course of trade they are obliged to sell, are tricked into
finding the necessary value with which to meet and renew
Federal Reserve Notes that represent other people's debts.
148 "BROADSHEETS" ON NATIONAL FINANCE
Thus, individual members of the public, as long as other
people deem necessary, pay the debts contracted between
bank-favoiured buyers and bank-favoured sellers ; for the
Banks both can and do (and in principle reasonably so)
discriminate as to the kinds of trade, and the persons carrying
them on, to be encouraged or repressed.
This issuance of Legal Tender Notes for Bills, in the
discounting or re-discounting of the Bills, reaches a Umit
regulated by a percentage of Bank Reserves to obligations
—a limit which may be extended by reducing the percentage
of reserves.
When the limit is reached no more Legal Tender Notes
are issued.
This stops further trading and reduces the necessary
supply of commodities for circulation.
Renewals of the Bills and Promissory Notes of the pri-
mary makers of same leave the trading of these people in
abeyance, and the Bills revolving. Renewals cannot be
refused, because if they were a great industrial crisis and
financial panic would ensue. The maximum issue of notes
is thu^ maintained whilst trading decreases.
Commodities being reduced both by consumption and
by non-renewal, whilst the number of Legal Tender Notes is
maintained by necessary renewals, the relative commodity
value of the notes is reduced, and prices proportionately
rise whilst suppUes of some commodities are not obtainable
at any price.
This position may become so acute and menacing that
not only must renewals be continued, but more Bills must be
discounted, and further note issues made in order that impera-
tive suppUes of commodities shall be set going.
FinaUy, the notes are so relatively numerous that they
cannot be further increased except to produce Russian con-
ditions. The Banks' reserves go down to Zero, nobody can
pretend that the notes can be met by the Banks with any-
" BROADSHEETS " ON NATIONAL FINANCE 149
thing but paper, and the public cannot any longer meet them
with commodities. Industry than ceases and the stacks of
Legal Tender Paper will buy nothing, either because there
is notliing to buy or because prices are too high for buyers,
while lower prices arc too low for sellers. Progressive
unemployment is the symptom of this development or creeping
paralysis.
Under this Legal Tender System
(1) MEMBERS OF THE PUBLIC GENERALLY
ARE MADE TO PAY FAVOURED PEOPLE'S
DEBTS by the discounting' and re-discounting of
bills with Legal Tender Notes that the members
of the public are forced, at every exchange, to find
the value for, at the will of Bankers.
(2) Prices are forced up by the test of par of standard
gold constantly and independently of law applied
to the Notes.
(8) Prices are forced up or deranged by speculation for
the rise in foreign exchanges promoted by continued
legal tender depreciation, or for the fall, by schemes
for procuring a temporary fall ;
(4) Increasing issues of notes against decreasing existing
values prevail.
(5) Government control adds to the chaos by unbalancing
trade in obtaining, diverting and stopping supplies,
as well as by causing deception and adulteration
and the toleration of worthless substitutes at high
prices.
(6) The Money Bubble bursts in Social Disorder.
The policy of Legal Tender Notes, not properly covered
by standard gold, is thus a policy based on trickery, leading
to improper appropriations from and ultimate ruination of
the general public in the interests of special members of it.
I can be more expHcit, but that ought to be explicit enough.
In conclusion, to turn from Federal Reserve Notes baok
150 "BROADSHEETS" ON NATIONAL FINANCE
to Treasury Notes, I will not point out how these are operat-
ing ; or where our Bank Reserves really are ; or what, either
deliberately or unconsciously, Finance is doing to bleed the
country white in fruitlessly trying to restore values where
they are lacking.
I will not point out how Treasury, National Banks and
the Bank of England are shifting their obligations ; or how,
if our Banks do not shut down credit, prices fly up, while if
they do shut down credit, work tends to a standstill ; or how
again credit cannot remain as it is.
For this dilemma the remedy^ — sound money and a
particular kind of credit-right — is a necessity, not a matter
of choice for pohtical parties or individuals. In the Coal
trouble the proper course is to continue the subsidy until the
remedy can be applied. A mere fight against Communism
or Nationalization, or the submission to the electorate of a
question which requires no answer, is not a remedy.
The silence of men who know all this is amazing. It is
now guilty silence. May those who are less informed and yet
have a claim to statesmanship be wise enough in time — there
is hardly time — to save themselves from being set down in
history, however undeservedly, as traitors to their country I
Printed in Great Britain by Butler & Tanner, Frame and London.
».(,uiNOLI8T MAYl
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